No guarantee in a rate guarantee

Rachel Thrussell, Head of Savings at Moneyfacts.co.uk, comments: “While the lending markets may still be sitting under a cloud as a result of the credit crunch, there has been a far sunnier outlook for savers over the past few weeks. With competition hotting up, rates rising and new accounts being launched, it’s a perfect time to bag yourself a great savings deal while you still can.

“But hand in hand with increased competition comes increased ‘creativity’; some providers are attaching numerous terms and conditions to accounts to enable them to offer those very appealing interest rates. So it’s never been more important to look beyond the headline rate. If it looks too good to be true, then it probably is – unless you are willing to jump through a number of hoops.

“However amongst the complicated array of bonuses, withdrawal restrictions, loss of interest, investment restrictions and access restrictions, comes what appears to be a positive selling point, i.e. the rate guarantee. Unfortunately in some cases there is in fact very little actually guaranteed with a rate guarantee.

“Today over 90 accounts have rate guarantees, and some even have multiple guarantees spread over a period of time. But almost every guarantee is worded slightly differently, with a variation of underlying rates, bonus combinations and time periods. Here are just a few examples of some of the leading providers, which offer rate guarantees.

“In so many cases the rate guaranteed limit is set below the current pay rate, so even if base rate remains unchanged, the provider has the right to lower your rate and still stay within its promise. So in fact the only guarantee provided is the minimum the rate can fall to, effectively placing a base rate linked collar to the account.

“And if you do find an account, as with the example of Saga’s Online Savings account, whereby the pay rate is equal to the guaranteed rate. You will be safe in the knowledge that its rate cannot fall outside of a base rate move – but this security will only be short lived.

“Rate guarantees offer little protection but can add considerable confusion to an already complex savings market. Make your own guarantee to review your accounts on a regular basis, check out the current best buys. It’s also worth checking out the accounts which offer a consistently competitive rate of return. Look beyond the headline rate and delve into the small print. You may be surprised to find a multitude of conditions which may show the account in a very different light.”