Szu Ping Chan looks at an ugly savings account practice that could end up leaving you short-changed.
This article was first sent to Fools as an email in our 'The Good, The Bad and The Ugly' campaign.
We all want the best for our savings, and when it comes to stashing that cash, instant access savings accounts are always a good choice, as they give you a great return on your savings without tying you in.
However, according to statistics from financial research company Defaqto, out of the 50 instant and easy access accounts currently available, a mighty 30% (15 accounts) limit the number of withdrawals permitted, or impose penalties on withdrawals.
In addition, 36% (18 accounts) include introductory bonuses and 18% (nine accounts) have minimum age requirements of at least 50 years old.
In fact, less than two-fifths (38%) of these `instant access accounts' have no withdrawal restrictions or introductory rates - showing how few accounts marketed as easy-access are actually that straightforward.
Here's how the top ten instant access accounts size up against each other, including any restrictions they have:
Provider | Account | AER for £5,000 | Introductory Bonus | Withdrawal Conditions |
Instant Access Savings | 6.55% |
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Birmingham Midshires | e-Saver Issue 2 | 6.52% |
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Bradford and Bingley | Internet Saver Issue 3 | 6.51 |
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Abbey | eSaver Direct | 6.5% | 0.75% for a year | Interest rate reduced to 2.75% AER for any month in which a withdrawal is made. |
eSaver | 6.5% | 0.88% until 02/02/09 | No interest in any month in which withdrawal made (except in July) | |
AA Internet Saver Issue 1 | 6.46% |
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West Bromwich BS | Stratus No Notice Account | 6.45% |
| Six withdrawals per year; closed thereafter. |
Kent Reliance BS | Direct 65+ Easy Access | 6.45% | 65 |
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Flexible Saver issue 4 | 6.43% | 1.61% for one year |
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Anglo Irish Bank | Easy Access Issue 2 | 6.4% |
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*Source: Defaqto. Data correct as at 28th August 2008.
*Since Defaqto drew up this table ING Direct increased the rate on its savings account to 6.5%. That rate includes a 1.66% bonus which is fixed for 12 months.
Although there is only a 0.15% difference between the interest rates paid on the top ten savings accounts - on closer inspection, there are some much bigger differences.
For example, Abbey's eSaver Direct pays what looks like a very attractive 6.5% AER. However, during any month you make a withdrawal, the interest rate drops to a derisory 2.75%. The advertised rate also includes a 0.75% bonus for the first year. After those 12 months have elapsed, the account ends up looking much more ordinary.
Additionally, West Bromwich's flamboyantly named Stratus No Notice account could be renamed the `Stratus no notice for six times only' account, as the building society will close it if you make more than six withdrawals per year. Plus, if the balance falls below £1,000, the interest rate you'll receive drops to just 3%.
Get the best.catch-free
Thankfully, on this occasion the best savings rate also comes with no catches, as the table topping Kaupthing Edge instant access savings account pays a generous 6.55% AER, with no restrictions.
In addition, the Bradford and Bingley Internet Saver Issue 3, and the Birmingham Midshires e-Saver Issue 2 are also catch-free, and you can open both accounts with as little as £1.
Personally, I like the Anglo Irish Easy Access Issue 2 account. It pays a slightly lesser rate of 6.4%, but when you need the money, providing your request is received before 2pm on a working day, the bank will send it to you via a same-day CHAPS transfer, at no extra charge.
The most important thing to remember when choosing a savings account is to read the terms and conditions carefully to ensure you don't get short changed by your provider. Sifting through the fine print may not be fun, but you could lose out if you don't.
Of course, a few restrictions can actually be beneficial, as they might discourage you from making withdrawals. But then again, that wouldn't really make the account easy access, would it?