Great bonus rate on your savings? Check the small print
Bonus rates make for good headline figures in the competitive savings account market, but check the small print before committing your savings, warns Julie Smith, head of savings at Fair Investment Company, or you could be in for a real shock.
"Instant access savings accounts and cash ISAs regularly offer an introductory bonus rate of interest for opening an account; this can be as much as 80 per cent of the overall rate on offer," says Julie, "but, if you are considering a savings account paying a bonus rate (and the bonus should apply for at least six months) make sure you know what the rate is after the bonus- you might be in for a shock."
In most circumstances, once the rate of interest drops, your bank or building society will write to you; however, warns Julie, this depends on what type of account you have and how large the fall is.
"Payment accounts - some flexible savings accounts and current accounts - are governed by EU-wide regulations and you will be notified two months in advance of any changes; the FSA rules state two months as this is deemed sufficient notice to allow customers to switch or close their account without penalty.
"But if it is a non-payment account it is covered by Financial Services Authority (FSA) rules and you will only be personally notified where the change is considered of a ‘material nature'."
'Material nature' is defined by the industry as the rate falling in one go by more than 0.25 per cent and where the account balance is £500 or more, or if the rate falls by 0.50 per cent over the course of 12 months.
"So it is vital that you make sure any bank or building society you deposit savings with has up-to-date contact details for you," says Julie.
Julie says that when it comes to savings, a lot of people suffer from inertia, so she urges people who don't think they're likely to be moving their money around all of the time to look for an account that pays a consistent rate they're happy with.
"Normally the higher, consistent rates on offer are fixed term savings which involves locking your money away for a set period. In exchange for that, rates can be as high as four per cent annually depending on how long you are willing to lock your money away for and how much you are investing."
"But even with a fixed term account, you need to make sure you totally understand the terms and conditions, because when a fixed term account comes to the end of its term you could find your savings rolled over into another fixed term account at a different rate or into a current account paying little or no interest.
"So, whatever type of savings account you are looking for - from fixed rate bonds to cash ISAs - it is vital you check all of the small print before you apply."