Don't Get Caught Out By This Gimmick!
This summer, savings providers are increasingly vying for the lucrative `grey pound'... But should those over 50 beware?
This article was originally sent to Fool readers as part of our Summer Lolly email series.
This summer, with more than 20 million people over the age of 50 in the UK, savings providers are increasingly vying for the lucrative `grey pound'.
Many savers over 50 are now web savvy and happy transacting online. So it should come as no surprise to learn that, over the past few years, we have seen a spate of new savings account launches aimed at these `silver surfers'.
It seems financial institutions have woken up to this hugely important segment of the market and begun offering products and rates aimed specifically at those aged 50 and above.
However, while increased competition and improved product choice and innovation is certainly welcome, it's crucial to note that if you're a mature saver, you will not automatically benefit from these niche products.
In short, as with any financial product, you must not rely on the accounts packaged for a particular group by specialist providers -- but take the time to scour the whole market for the best rates and deals on offer.
Instant Access Accounts
Heritable Bank is one of the latest financial institutions to jump on the "silver surfers" bandwagon. This week it launches an instant access saver account exclusively for individuals aged 50 or over.
The account offers a current rate of 6.31%, and is guaranteed to beat the Bank of England base rate by at least 0.25 percentage points for the lifetime of the account. There is no introductory bonus, which is good news, but the rate is variable and you must deposit a balance of at least £1,000. What's more, if you make more than six withdrawals a year you will be charged 30 days' interest - so it is not a true `instant access' account.
Most importantly, this `exclusive' 50+ account can be beaten by several of the mainstream offerings in the instant access savings market -- particularly if you go online.
Bradford & Bingley, for example, is paying 6.51 per cent on its Internet Saver Issue 3, on a minimum balance of just £1. A much better deal - and you don't have to be 50 to access it.
Another account which rates high in the `over 50s account best buy table' is a 60-day notice account from Coventry Building Society -- the Fifty-Plus notice -- paying 6.26 per cent. This includes a 0.6% bonus for the first 12 months. And you have to deposit a whopping £10,000 to access the account!
In the standard market, the top paying notice accounts include a 60-day notice account from the Derbyshire Building Society, paying a rate of 6.55% on a minimum balance of £250 -- a rate which easily beats the Coventry's offering.
Alternatively, if you want a notice account with a shorter notice period, Bradford & Bingley offers a 6.1% 30-day notice account, with interest paid monthly. The minimum balance is £1,000.
But why would you go for a notice account that pays a lower rate than an instant access account? Forcing you to give 30 days' notice before you can get at your money is a benefit to the bank, not to you. If an instant access account pays a higher rate, as the aforementioned Internet Saver 3 deal from Bradford & Bingley currently does, then it's usually a no-brainer to go for an instant access account over a notice account.
Fixed-rate savings bonds
If you're prepared to tie up your cash for a year or more without being able to get your hands on it, Principality Building Society is currently sitting at the top of the `best buy' table in the fixed-rate savings bond market with its account for the over-50s.
But while it pays a rather attractive 7.15% on its two and three-year bonds, it does require a minimum deposit of £10,000.
In contrast, Birmingham Midshires is currently paying 7.11 per cent to all customers who take out one of its internet one-year fixed rate bonds -- on a balance of just £1-- making this a very attractive proposition. Meanwhile, FirstSave is paying 7.1 per cent on its one, two and three-year bonds, on a minimum of £1,000.
Looking now beyond savings accounts, Alliance & Leicester offers a current account aimed at the over 50
This account now pays a rate of 8.5 per cent for the same monthly fee and continues to offer "lifestyle benefits" including worldwide travel insurance and health benefits.
However, it is hard to fully see the added value, when this is the same rate that it pays on its market-leading Premier Direct account -- a free account.
Don't go for the gimmick!
At the end of the day, these examples serve to demonstrate that you shouldn't just look at accounts specifically for the over 50s, as some savings accounts which are open to everyone may offer more competitive rates -- depending on the notice period and amount invested, of course.
The key thing to remember is not to be lured in by the gimmick. As always, if you shop around for the best product and the best rates, you can be sure of getting the best product and the best rate. If you don't, you can't. It really is as simple as that.