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At a time when it's becoming increasingly tough for savers to earn a decent return on their cash, we've analysed what's left of bonus savings accounts to see if they could offer a solution. Well, while these accounts can be useful for the short-term, you'll want to be on the ball, as two-thirds pay less than 0.25% once the bonus expires.
Our data shows that, out of the 22 bonus savings accounts currently available, 15 – or 68% – will pay less than the Bank of England base rate of 0.25% after the first year, which means it's vital for savers to make a note of the anniversary and switch.
That's not to say that these accounts should be overlooked, however. After all, bonus savings accounts can be handy if you want a guaranteed rate, with the additional benefit of easy access: a portion of the return (the bonus) is fixed for a set period, typically one year, so even if the variable rate is cut, the bonus acts as a safety net.
Despite this, bonuses will eventually expire, and the account could end up paying next to nothing in some cases; as the table below shows, the average rate for a bonus savings account currently stands at 0.63%, yet once the average bonus of 0.45% expires, the rate will plummet to just 0.18%.
|Total number of bonus savings accounts||22||22|
|Average rate overall (including bonus)||0.84%||0.63%|
|Average bonus rate (underlying bonus)||0.50%||0.45%|
|Best bonus easy access account*||Post Office Money 1.20%||West Brom BS 1.05%|
|Best bonus easy access cash ISA*||Post Office Money 1.40%||SAGA 0.95%|
*Best accounts based on accounts available to new customers. Bonus savings account statistics include data from all easy access accounts, notice accounts and easy access cash ISAs which have a bonus rate.
Unfortunately, the table also highlights how far average rates have fallen in the last year, so while the bonus still provides a welcome uplift, it'll nonetheless be tricky to find a decent return.
This has arguably become even harder since the FCA, the UK's financial regulator, got involved. In January 2015, the FCA scrutinised bonus accounts and was critical of banks and building societies not making it clear to consumers when the bonus expired. As a result, a few 'teaser rate' accounts were removed from the market, and today there remain very few bonus accounts left to choose from.
This is despite the fact that bonuses can provide a bottom line safety net, a desirable feature when interest rates are being cut, so while these accounts could prove beneficial to consumers, they're few and far between – and the drop in rates means the market has become even less appealing.
"In years gone by, savers could have turned to bonus savings accounts in their hunt for a competitive return with a guaranteed underlying rate, but the appeal of these accounts is deteriorating," said Rachel Springall, finance expert at Moneyfacts. "Two-thirds of the bonus accounts available today will pay less than base rate after the bonus expires, while the average rate on a bonus savings account has fallen by 0.21% over the past year, to just 0.63%."
It's worth noting that the underlying bonus rate has fallen by just 0.05% over the same period (to 0.45%), which shows that the rate cuts over the past year have been focused on the return outside of the guaranteed bonus. However, this will come as little consolation to savers seeking longer term returns, with the average rate after a bonus expires remaining incredibly disappointing.
Many aren't even able to hit the 0.18% average, with our data showing that some accounts pay as little as 0.05% when the bonus expires. Not only that, but none of the largest high street banks would pay a return of 0.25% or more, and there are only four providers (Post Office Money, Skipton Building Society, Tesco Bank and West Brom Building Society) who would pay above that level after the bonus vanishes.
"Clearly it's important to compare these accounts against bonus-free easy access Best Buys, especially as challenger banks have continued to climb to the top of the market recently," concluded Rachel. "However, the guarantee of a bonus could still attract some savers, particularly those who want easy access to their cash and are wary of more rate cuts to come."
Bonus saving accounts could still prove fruitful for those who remember to review the rate in a year's time, so check out the top bonus account rates to see what's on offer.
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