What's the best option for your savings?
Enticed by a headline-grabbing temporary bonus rate or considering fixing on a guaranteed rate? We look through the pros and cons of the two savings options.
Cashing in on the bonus | Checking your rate | Fixing on a deal | What will you decide?
Cashing in on the bonus
Bonus rates are normally available on instant access savings and cash ISAs. At the end of the tax year, also known as ISA season, bonus rates are often out in force on cash ISA accounts, as providers seek to attract new customers.
A bonus rate is a temporary, interest rate boosting addition to a savings account. So the basic rate of interest may be the Bank of England Base Rate, say 0.50 per cent (at May 2011), but the account is offering 3.00 per cent, because there is an additional 2.50 per cent bonus for 12 months.
While this is a temporary uplift for savings, if you don’t transfer to a new account after 12 months your savings could be sitting in an account offering a rate at a market low.
Checking your rate
Any bonus rate on offer should be for a minimum of six months, though they are normally for 12 months. It is best to check what the bonus rate is and when it ends before committing your savings.
Whether the provider will tell you when the interest rate changes may depend on the type of account you hold, so you will not always be told your interest rate has fallen. Although, the high street banks committed in 2010 to printing interest rates on statements or providing rate information to customers.
When it comes to savings, many people suffer from inertia, and, if you don’t think you will want to be moving savings around, looking for a fixed-rate account may be a better option for making the most of your savings.