Following repeated cuts to the base rate in 2008/09, savings rates have plummeted to record lows. Even worse, savings bonuses are now vanishing fast, according to new research from financial researchers Moneyfacts.
Millions of British savers boost their returns by stashing their spare cash in savings accounts offering short-term bonus rates which usually last for up to a year. However, the number of accounts in this category has tumbled as banks and building societies scramble to scrap these accounts.
The following tables show that this trend has accelerated markedly since last August, following the introduction of cheap money for lenders from the Funding for Lending scheme:
1. Easy access accounts with bonuses
|
Date |
Total accounts |
Bonus-paying accounts |
Highest bonus |
Average bonus |
% with bonus |
|
January 2011 |
541 |
101 |
3.00% |
1.06% |
19% |
|
January 2012 |
502 |
79 |
2.70% |
1.34% |
16% |
|
August 2012 |
470 |
73 |
2.70% |
1.35% |
15% |
|
January 2013 |
416 |
46 |
2.00% |
1.02% |
11% |
|
Change 2011-2013 |
-23% |
-54% |
|
|
|
Source: Moneyfacts
As you can see, the number of easy access accounts has fallen by nearly a quarter (23%) over the past two years. Worse still, the number of such accounts paying introductory bonuses has crashed by more than half, falling 54% to a mere 46 accounts today.
While these bonus accounts have been disappearing, bonus rates have been falling, too. Since January 2011, the top bonus rate on offer has fallen from 3% to 2%, while the average bonus paid has dipped to 1.02% today from 1.06% in January 2011.
As a result, only one in nine (11%) easy access accounts now pays a bonus, versus nearly a fifth (19%) of the total two years ago.
2. Notice accounts with bonuses
|
Date |
Total accounts |
Bonus-paying accounts |
Highest bonus |
Average bonus |
% with bonus |
|
January 2011 |
264 |
35 |
2.12% |
1.03% |
13.3 |
|
January 2012 |
257 |
24 |
1.55% |
0.99% |
9.3 |
|
August 2012 |
263 |
23 |
2.00% |
1.02% |
8.8 |
|
January 2013 |
212 |
11 |
1.25% |
0.96% |
5.2 |
|
Change 2011-2013 |
-20% |
-69% |
|
|
|
Source: Moneyfacts
This trend of disappearing bonuses is even more pronounced when we look at notice accounts (accounts that restrict access to your money, usually for periods ranging from 30 to 180 days).
[SPOTLIGHT]The total number of accounts in this category has fallen by a fifth (20%) in two years. Sadly, the number of notice accounts paying bonuses has collapsed by almost seven-tenths (69%) over the same period. As a result, only 11 notice accounts now pay introductory bonuses to British savers.
Similarly, the highest bonus on offer from any notice accounts was 2.12% in January 2011, but stands at just 1.25% today. In addition, the average bonus paid by accounts in this category has slipped from 1.03% two years ago to 0.96% today.
In short, savings bonuses have been bashed over the past two years, despite no change to the Bank of England's base rate since early 2009.
Put the blame on borrowers
From the tables above, you'll see that the slide in the number of savings accounts paying bonuses has accelerated sharply since August 2012, when Funding for Lending (FLS) was launched.
Since its launch on 13 January 2013, the FLS scheme has allowed banks to borrow from the Bank of England at rates as low as 0.25% for the 18 months until 31 January 2014. While this has slightly lowered mortgage rates, it has also reduced lenders' dependence on savers’ deposits for funding.
Consequently, banks and building societies that have signed up to FLS have been killing off savings accounts and reducing rates since last summer. Clearly, this 'streamlining' of savings accounts will continue for as long as lenders can access a flood of cheap money from the UK's central bank.
Although this year has hardly begun, it looks like savers will again be hit for six in 2013!
The best bonus-paying accounts
Finally, if you want to earn top rates of interest on your spare cash, or you have an account with an expiring bonus, then check out these table-topping bonus rates:
|
Provider/ Account |
Yearly rate (AER) |
Bonus rate |
Rate after bonus ends |
Minimum deposit |
|
Tesco Bank Internet Saver |
2.00% |
0.75% for 12 months |
1.25% |
£1 |
|
ING Direct Savings Account |
2.00% |
1.48% for 12 months |
0.52% |
£1 |
| Derbyshire BS Netsaver | 2.00% | 1.50% until March 2014 | 0.50% | £1,000 |
|
Post Office Instant Saver |
2.10% |
2.00% for 12 months |
0.10% |
£500 |
These three accounts pay the highest rates (including bonus), while giving you unrestricted access to your cash.
I left out three accounts from this table, because they have penalties that kick in after a certain number of withdrawals.
The first is the Coventry BS Online Saver (4), which pays 2% (including a 0.4% bonus for 12 months) on £1+, but allows only four penalty-free withdrawals a year, followed by 50 days loss of interest on subsequent withdrawals.
The second is the Triodos Bank Online Saver Plus, which pays 2% (including a 1% bonus for 12 months) on £1+, but allows only three penalty-free withdrawals a year, with a yearly rate of 0.10% paid in any month during which further withdrawals are made.
The third comes from Nationwide Building Society, the MySave Online Plus, which pays 2% (including a 1.5% bonus for the first 12 months) on balances of £1,000+. Unfortunately it only allows a single penalty-free withdrawal.
Finally, before opening any bonus account, check to see how low the rate falls after the bonus ends. In some cases, this can be as low as 0.1% a year, as with the Post Office Instant Saver account shown above.