Instant access savings – make sure you read the small print!

Rachel Thrussell, Head of Savings at Moneyfacts.co.uk, comments: “With bank base rate increasing by a full percentage point over the last nine months, savings accounts can now offer rates high enough for savers to sit up and take notice. With deals now available around six per cent, it is shocking to see that the average rate available is still a measly 3.50%, so there’s plenty of opportunity for savers to improve their returns.

“However, before you start shopping for the best rate, a word of warning: don’t be lulled into an account purely based on the headline rate. Make sure you read the terms and conditions or you could be in for a nasty surprise.

“Some of the best ‘instant access / no notice’ rates to be found pay at least six per cent. Take for example the Direct Saver from Alliance & Leicester paying 6.10% AER and HSBC’s Online Saver offering 6% AER. At first glance these rates may seem very appealing, with the net return enough to protect your savings from inflation and rates higher than many other instant access accounts. But there is a catch; make any withdrawal and lose interest on your full balance for that month, yes, that’s right the whole balance, not just on the amount withdrawn.

“Alliance & Leicester and HSBC are not alone in offering these style savings accounts, First Direct also has a similar product.

“These accounts can complement a savings portfolio by offering a halfway house between an instant access account and a fixed term bond. However the withdrawal penalties must be made very clear when these products are marketed.

“Not only may the rate be attractive, the restriction may offer a welcome deterrent from withdrawing regularly. But the real problem does not come from the actual account terms, but from how they are branded. Moneyfacts would like to see further clarification on the branding of these accounts. Don’t call them instant access/easy access, without equal emphasis on the fact there is a sizeable penalty for immediate access to your savings.

“Moneyfacts is calling for transparency. Don’t label something as black and white when it is actually very grey. Think like a consumer, if you say instant access most assume that this entails penalty free access to your savings immediately.

“But there is a way you can avoid the catch. If you need to make a withdrawal no matter how small, why not withdraw the whole balance and invest it in a different account, then before the month ends put in back into your top paying account. For example, if you had a balance of £50,000 and only wanted to withdraw £1,000, why not withdraw the remaining £49,000 and earn interest on it elsewhere? If you can keep both savings products with the same provider, you also don’t lose the interest for the days when the money is being transferred between accounts. A bit of hassle admittedly, but it’s a way to play the system and keep the best possible rate.”