Headline grabbing savings accounts – How long before we see a 20% interest rate?

By: MoneyFacts

Rachel Thrussell, Head of Savings at Moneyfacts.co.uk – the money search engine, comments on the new regular savings accounts launched today from Alliance & Leicester and Abbey:

Alliance & Leicester
“Alliance & Leicester has really taken savings market to another level with the launch of its Mortgage Regular Saver, not only in terms of its headline rate but also the number of conditions that are attached. The headline interest rate of 15% may look fantastic, and for anyone who can match the account requirements it is the best paying regular saver on the market.

“But here are the catches, and as you’ll see, most savers won’t even get past point 1.
1. Only available at the time when you take out an Alliance & Leicester Mortgage (not further advances)
2. Only available for 12 months
3. Restricted to a maximum of £3K, invested in regular payments of between £10 and £250
4. Payment amounts cannot be altered
5. Must make all twelve payments
6. On maturity account is transferred to an instant access account – one of the worst paying accounts on the market

“Most of the conditions above are similar to those found on many regular saver products, but by restricting their invitation to new mortgage applicants, Alliance & Leicester can afford to offer such a rate.

“Regular savings accounts are often used as a hook to reel in current account business, but switching current accounts is a very different proposition to choosing a mortgage provider. Surely no one will be swayed to switch mortgage providers just to get this savings rate.

“If the mortgage offered by Alliance & Leicester is the best deal for you, then this savings account could be worth a look. However the small gain available (max £225 before tax) on the account can soon be eroded by the cost of choosing the wrong mortgage deal.

Abbey
“The Abbey Super Monthly Saver account is more orthodox, paying 10%. It has the following conditions:
1. Applicant must also hold one or more of the following products:
o Abbey Bank Account (funded by £1K)
o Investment product (excluding GIB & CTF)
o Pension
o Protection plan
2. Only available for 13 months
3. Restricted to a maximum of £3,250, invested in regular payments of between £20 and £250
4. Payment amounts cannot be altered
5. 0.10% paid for that month if a payment is missed or withdrawal is made
6. Transfers to a Flexible Saver on maturity

“As is the nature of regular savings accounts the conditions can be restrictive and the return limited. But if you do decide to take advantage of this offer, then choosing to switch your current account could also be lucrative. The Abbey current account offers a market leading 8% credit interest (but only for the first year).

“The key with regular savings accounts is to understand the limitations and don’t be fooled by the headline rate.”
“But where will it stop? Will providers start offering interest rates of 20% with twenty hoops to jump through? Or why not offer 50% interest, and restrict the account to literally a handful of customers?”

www.moneyfacts.co.uk - The Money Search Engine

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