Head of savings at Fair Investment Company, Julie Smith, discusses headline rates and checking the small print when it comes to savings.
Bonus rates make for good headline figures in the competitive savings account market, but check the small print before committing your savings.
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.
If you are considering a savings account paying a bonus rate, the bonus should apply for at least six months and make sure you know what the rate after the bonus is – 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, 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.
If it is a non-payment account it is covered by Financial Services Authority (FSA) rules and savers will only be personally notified where the change is considered of a ‘material nature’. This 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.
That’s one reason to make sure any bank or building society you deposit savings with has up to date contact details for you.
If the rate falls by 0.50 per cent over the course of 12 months, this is also considered a material change and you will be contacted.
The guidance for organisations to comply with FSA rules is that this notice of a change in circumstances should be made in sufficient time to allow customers to switch or close their account without penalty.
When it comes to savings, a lot of people suffer from inertia so if you don’t think you’re likely to be moving your money around all of the time you’re probably better off looking for an account that pays a consistent rate you’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.
When it comes to looking at the different types of savings accounts available – from fixed rate bonds to cash ISAs – to find the right account for you, check all of the small print before you apply.
For example, 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.
© Fair Investment Company Ltd