Exclusive savings accounts offer worse deal than accounts open to all

Research shows savers are better off shopping around instead of going for exclusive deals.

Savers that take advantage of exclusive savings accounts promising loyalty rates could be better off with an account open to all, according to new research.

Moneyfacts analysed products only available to those with existing current accounts with a provider and compared them to rates available on the open market.

When comparing easy access, two- and five-year fixed-rate bonds it found that savers were missing out on up to 0.9% by staying loyal and would be better off shopping around.

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Exclusive loyalty rates vs the open market

Here’s how the top-paying loyalty accounts compared to the top paying deals on the open market for easy access accounts as well as two- and five-year fixed-rate bonds.

*Anticipated profit rate

 Source: Moneyfacts.co.uk rates correct as of 19/04/2016

As you can see the top loyalty easy access account from TSB pays 1.10% but the top easy access account open to all from RCI Bank  pays 1.45%.

So those that believe they are getting a better deal from their bank would in fact be losing out by 0.35%. On £5,000 worth of savings that amounts to £17.50 less interest in a year.

The difference in returns is even more extreme when looking at fixed-rate bonds.

For a two-year fixed-rate bond, the top paying loyalty deal from Clydesdale and Yorkshire Banks pays 1.5% but the top paying open market deal from Al Rayan Bank pays 2.4% - a whopping 0.9% more.

In this case, a saver that sticks £5,000 in a loyalty account would miss out on over £91 worth of interest over the two-year deal.

Meanwhile on a five-year fixed rate deal the top paying loyalty rate is again from Clydesdale and Yorkshire Banks at 2.20%, but the top paying five-year bond open to all from the State Bank of India pays 2.90%- a difference of 0.7%.

Investing £5,000 over five years in a loyalty account would mean you lose out on £193 worth of interest over the period compared to putting it in the best open market deal.

When loyalty doesn’t pay

Providers offer loyalty accounts to keep hold of their existing customers.

These exclusive deals pay better rates that their normal products, which can make savers think they are getting a good deal.

But these products are only worthwhile if they can’t be beaten elsewhere on the open market, so it’s important to shop around, even if it’s a hassle.

Charlotte Nelson at Moneyfacts said: “Savings linked to current accounts remove the hassle of moving money to and from different accounts, which is why many prefer to have a savings account with their main provider. However, savers need to be careful as they could end up stuck with shockingly low interest rates.

“As savings rates are currently low, it’s hard for savers to muster up the willpower to switch savings deals, but this lethargy is being used to providers’ advantage and is resulting in even more poor-paying deals. Savers therefore need to vote with their feet and get past the misconception that ‘exclusive’ loyalty deals mean the best rate. Instead, they should try to shop around to prevent their money from languishing in an inferior account.”  

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