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Bonus savings accounts put on a vanishing act

Bonus savings accounts put on a vanishing act

Category: Savings

Updated: 25/05/2016
First Published: 24/05/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Bonus savings accounts may sound appealing, but unfortunately, all may not be as it seems. Not only do they require plenty of active management to ensure you're still getting a decent rate, but diligent savers who may have turned to these accounts to get a little extra will be disappointed by our latest research, which reveals that bonus accounts are steadily vanishing from the savings market.

Critical thinking

Much of the vanishing act could be due to the sharp criticism that bonus savings accounts have received. They came under scrutiny last year when the Financial Conduct Authority (FCA) criticised banks for not clearly informing customers as to when the bonus rate expired on their account, and it was also suggested that savings providers needed to make it easier for consumers to compare bonus deals with other accounts.

Since the study was published in January 2015, a number of banks and building societies have withdrawn their bonus accounts from the market. As a result, there are now only 25 savings deals on the market that have a bonus element, down from 29 a year ago and 37 two years ago. The level of bonus offered has also dropped considerably, down from 0.50% two years ago to 0.41% today, resulting in the average easy access rate (including a bonus) falling from 0.88% to 0.74% over the same period.

2 Years Ago Jan 2015 1 Year Ago Today
Total number of bonus accounts 37 32 29 25
Average rate overall (inc bonus) (easy access) 0.88% 0.88% 0.88% 0.74%
Average bonus rate (easy access) 0.50% 0.54% 0.53% 0.41%
Best bonus savings account (easy access) Tesco Bank - 1.35% Post Office Money - 1.40% SAGA - 1.35% West Brom BS - 1.30%
Best bonus cash ISA (easy access) Skipton BS - 1.50% Post Office Money - 1.50% Post Office Money - 1.41% Post Office Money - 1.10%

Rachel Springall, finance expert at Moneyfacts, commented on the findings:

"It's sad to see yet another area of the savings market suffering. In previous years, bonus savings accounts were a great option for any saver looking to chase down the best returns, but the availability of these deals is now dwindling.

"The study from the FCA may have unintentionally encouraged this: instead of putting measures in place to better inform savers of account features, such as the expiry date of any bonus interest, providers seem to have opted to scrap the accounts altogether."

In fact, there are now only 17 easy access savings accounts and one notice account that pay a bonus, while in the ISA market there are just seven to choose from. "This is a great loss to savers, as these accounts often pay a higher than average rate, albeit for a limited time," added Rachel.

"For instance, the average easy access savings account with a bonus has a rate of 0.74%, including an average bonus of 0.41%. Meanwhile, the average easy access savings account without a bonus pays just 0.59%. So, provided savers are prepared to review their account's competitiveness when the bonus expires, they could net themselves a highly competitive deal.

"Sadly, it's possible that we will see yet more bonus accounts disappear from the market, so savers considering one of the best buy deals today would be wise to snap it up while they still have the chance."

What next?

Compare the best savings accounts

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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