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If you're looking for flexibility, but also want at least some of your savings return to be guaranteed, bonus savings accounts have always been your best bet, as they allow easy access with a set bonus for a period of usually a year. Unfortunately, these accounts are starting to disappear, and our latest research shows they may even be facing extinction!
There was a time when bonus accounts thrived, but ever since the FCA's study in January 2015, which called for more prompts to let customers know when their bonus was due to expire, providers have started to cull their offers. Indeed, some deals in the top easy access with bonus account chart now pay as little as 0.15%.
What's more, only 5% of easy access accounts now offer an introductory bonus, or 18 account options out of the 335 available (including all varieties of interest payment methods). This compares with 70 options available to consumers in 2012, marking quite the drop in choice.
|Easy access accounts at £10K||Oct-12||Jan-15||Oct-17|
|Total number with a bonus||70||27||18|
|Average rate overall (incl. bonus)||2.12%||0.92%||0.67%|
|Average bonus rate||1.30%||0.56%||0.43%|
|Best bonus savings account*||AA - 2.80%||AA - 1.40%||ICICI Bank - 1.24%|
|*Best accounts based on those available to new customers, excluding ISAs. Source:moneyfacts.co.uk|
The above table also shows that the overall rate has fallen dramatically over the same period, now standing at 0.67%, while the average bonus rate now stands at 0.43%, which indicates that the bonus might in some ways be outperforming the underlying variable rate.
If you're someone who doesn't like to change accounts every year to chase better rates, then a bonus account might not be for you, as the bonus can make up a quite substantial part of the rate, which means that once it disappears, the rate can drop quite dramatically.
"Savers are right to be warned of their bonus expiring," Rachel Springall, finance expert at moneyfacts.co.uk, points out. "Currently, the average bonus rate on the top ten deals is 0.53%, while the overall average rate of these ten accounts is 0.83%. And looking across all easy access accounts with an introductory bonus, the interest rate after a bonus expires is just 0.24% on average, which is lower than the current Bank of England base rate."
Part of the reason for these dismal rates may be a lack of competition, with "a scarce number of providers that seem willing to launch a bonus account," according to Rachel. In fact, the only provider to launch a new easy access with bonus account in the last three months has been ICICI Bank, which currently sits at the top of the charts with a rate of 1.24%.
In contrast, the top easy access account without a bonus pays 1.26%, from Charter Savings Bank, further showing that the bonus market is not the most competitive right now. And yet, the easy access market is by nature a variable rate market, meaning that the top rate of 1.26% on offer right now could drop to 0.26% just like that, simply because the provider decides to change it.
Meanwhile, if you were to take out the top with-bonus rate of 1.24%, it would only ever be able to drop to 0.60% until the bonus expires. So, if you're worried about rates dropping in the easy access market, and you don't mind changing accounts every year or so to get a better rate, then an easy access with bonus account could still be worth it. Just act fast or they might all disappear!
If you'd rather get some guaranteed returns and wouldn't mind losing some flexibility, you could consider the fixed bond charts
Finally, Rachel reminds us that: "Whatever vehicle savers choose as a home for their cash, it's vital they make a note of when they invested and of any changes to their interest rate. Easy access bonus savings accounts can still be a flexible choice, but savers will need to turn away from high street brands to find table-topping returns."
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