To make your savings work as hard as they can, take advantage of accounts which pay extra bonuses. We track down the best of the best.
The Bank of England has raised its base rate five times since last August, taking it from 4.50% a year to 5.75% today. That means savings interest rates are on the up, so it's a great time for savers.
Last week in Are Your Savings ShrinkING?, I showed you how to take advantage of rising rates when I highlighted the highest interest rates presently paid by easy-access accounts. Some of these now pay yearly interest rates in excess of 6% AER, with no strings attached.
For example, for easy-access accounts with no withdrawal penalties or other traps, you'd be hard pushed to beat the ICICI Bank HiSAVE account (6.30% AER on £1+), the Sainsbury's Bank Internet Saver account (6.25% AER on £1+ from 01/08/07) and the Icesave Easy Access account (6.20% AER on £250+), all of which come with interest-rate guarantees.
Then again, if you're smart and organised, it's possible to beat even these top-notch rates. You can do so by taking advantage of savings accounts that pay introductory bonuses which boost your interest rate for up to a year. The number of accounts which pay short-term bonuses has rocketed in recent years, as more and more providers use bonuses to gain entry to the Best Buy tables. In response to this, introductory-bonus accounts were hived off into a category of their own, in order to prevent them swamping the overall Best Buy lists.
Thus, introductory-bonus accounts are ideal for 'hot money' customers -- savers who avoid loyalty to any single provider, preferring instead to shuffle their savings every six to twelve months in order to maximise their returns. If you fall into this category (what I often call 'shop-around savers'), then have a look at the table below, which comes courtesy of the Fool's independent, unbiased savings search engine:
Best Buy savings accounts with introductory bonuses
(excludes notice accounts, fixed-rate and fixed-term accounts, and accounts for over-fifties)
Savings | Gross rate | Rate paid | Notes |
|---|---|---|---|
Tesco Savings | 6.75 | 50,000+ | Rate with effect from 15/08/07. |
Scarborough BS | 6.30 | 1,000+ | Rate includes 1% bonus until 30/09/08, then 0.45% bonus until 30/09/09. |
Bradford & Bingley | 6.26 | 1,000+ | Rate includes 0.51% bonus for a year. |
Birmingham Midshires | 6.20 | 1+ | Rate with effect from 01/08/07. |
The Tesco Savings Instant Access account pays one of the best rates that I've seen in recent years, especially from a supermarket savings account. However, its rates are tiered, so you only earn the new pre-tax rate of 6.75% (including the six-month bonus of 1%) on balances of £50,000 to £100,000.
The lower tiers (including the 1% bonus) are 5.60% on £1+; 5.80% on £3,000+; 6% on £5,000+; and 6.50% on £15,000+. What's more, this account still pays very attractive rates even after its six-month bonus expires, making it an ace account on the high street!
Finally, I'll leave you with two warnings about using introductory-bonus accounts:
1. Please keep a close eye on your savings and know exactly when your introductory bonus expires. In order to move your pot to the next hot-money account, be sure to start shopping around a few weeks before your current introductory bonus expires. Otherwise, your interest rate will slip and your savings will no longer earn Best Buy rates of interest.
2. When switching between accounts, don't forget to factor in the delays (and lost interest) caused by transferring money between accounts. Depending on whether you use a cheque or make automated payments via BACS (the Bankers Automated Clearing Services), you'll forfeit at least three days' interest while your funds are in transit between accounts.
That's it from me -- good luck with boosting your savings using bonuses!
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