SAVERS are being lured into opening “top” savings accounts that could see them end up with low interest rates.
Challenger banks including Plum, Trading212 and Moneybox are offering ‘best-buy’ Isas with rates of up to 5.68%.
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These rates are designed to appear at the top of savings comparison tables and attract customers who want to open an Isa now that the new financial year has begun.
But these accounts include a bonus which only lasts for three months, after which the interest rate plummets.
For example, the Plum Cash Isa has topped savings tables with its interest rate of 5.68%.
But the rate includes a bonus of 2.14% for three months, after which it falls to 3.54%.
If you opened this account with £5,000 you would earn £71.01 in interest in the first three months.
But in the following nine months you would earn just £132.75, giving you a total of £203.76.
This is £80.24 less than if the rate remained at 5.68% for the whole year.
The boosted rate is also only available to new savers, so loyal customers will miss out on it.
In comparison, Tembo Money is offering the highest paying cash Isa without a boosted rate.
It has an interest rate of 4.8%, which means you would earn £240 over the course of a year.
This is £36.24 more than if you opened the Plum Cash Isa with the boosted rate.
Rachel Springall, savings expert at MoneyfactsCompare, said: ““Savers need to watch out for upfront bonuses as some of the best cash ISAs on the market have a very short period of just three months on when the bonus applies.
“These are tantalising but its vital savers understand the rate will change once the bonus expires, so its up to them to review and switch.”
Which other accounts are offering boosted rates?
Moneybox is also offering a cash Isa with an introductory rate.
The account pays 5.67% for the first three months before the rate drops to 4.2%.
You would earn £228.39 after one year.
Trading212 will pay you 5.46% for the first three months, after which the rate falls to 4.5%.
Over the course of a year you would earn £237 in interest.
Meanwhile, CMC Invest will give you 5.7% on its variable cash Isa.
But the rate drops to 4.85% after three months, which means you would earn £253.14 in interest annually.
This means only the CMC Invest account would give you a better return than the best cash Isa without a bonus.
How do I get the best rate?
When looking for an Isa it is important to compare rates to make sure you are getting the best deal.
You can use comparison websites such as MoneyfactsCompare or The Private Office to check the rates on offer at several banks at once.
When you find a rate you like, read the small print to avoid being caught out.
How do I find the best savings rates?
WITH your current savings rates in mind, don’t waste time looking at individual banking sites to compare rates – it’ll take you an eternity.
Research price comparison websites such as MoneyFactsCompare.co.uk and MoneySupermarket.
These will help you save you time and show you the best rates available.
They also let you tailor your searches to an account type that suits you.
As a benchmark, you’ll want to consider any account that currently pays more interest than the current level of inflation – 2%.
It’s always wise to have some money stashed inside an easy-access savings account to ensure you have quick access to cash to deal with any emergencies like a boiler repair, for example.
If you’re saving for a long-term goal, then consider locking some of your savings inside a fixed bond, as these usually come with the highest savings rates.
It should tell you if the account includes a bonus and what the interest rate will be once the bonus has ended.
Rachel Springall said: “Comparing deals carefully and making a calendar note of any bonus is essential to not be left disappointed.”
Some accounts will also give you a lower interest rate if you make more than a certain number of withdrawals.
For example, the rate on the Moneybox Cash Isa falls from 5.67% to 0.75% if you make four or more withdrawals within one year.
If your account balance falls below a certain amount then your rate may also drop.
Moneybox will pay you just 0.75% on your savings if your balance falls below £500.
The Plum rate will also fall from 5.68% to 2.5% if your balance drops below £100 or after you make four withdrawals.
Under rules set out by industry regulator The Financial Conduct Authority (FCA), firms have a duty to make sure that their rates are clear and not misleading.
Consumer Duty rules warn that firms need to communicate in a way that helps savers to make effective, timely and well informed decisions.
For instance, this should include making the length of a bonus rate period clear.
An FCA spokesperson said: ‘People should shop around for the best savings rates, and introductory offers can encourage them to do so.
“We expect firms to make clear how offers work so that savers have the right information to make informed decisions.”
SAVING ACCOUNT TYPES
THERE are four types of savings accounts fixed, notice, easy access, and regular savers.
Separately, there are ISAs or individual savings accounts which allow individuals to save up to £20,000 a year tax-free.
But we’ve rounded up the main types of conventional savings accounts below.
FIXED-RATE
A fixed-rate savings account or fixed-rate bond offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term.
This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account.
Some providers give the option to withdraw, but it comes with a hefty fee.
NOTICE
Notice accounts offer slightly lower rates in exchange for more flexibility when accessing your cash.
These accounts don’t lock your cash away for as long as a typical fixed bond account.
You’ll need to give advance notice to your bank – up to 180 days in some cases – before you can make a withdrawal or you’ll lose the interest.
EASY-ACCESS
An easy-access account does what it says on the tin and usually allows unlimited cash withdrawals.
These accounts tend to offer lower returns, but they are a good option if you want the freedom to move your money without being charged a penalty fee.
REGULAR SAVER
These accounts pay some of the best returns as long as you pay in a set amount each month.
You’ll usually need to hold a current account with providers to access the best rates.
However, if you have a lot of money to save, these accounts often come with monthly deposit limits.
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