Loyalty is not the Best Policy for Savers

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• Published: 18 Sep 2009 in Money and Savings

Switching savings accounts could earn you money

When it comes to our savings, many of us put our money in an account and then forget about it.

But sticking with the same account - either due to inertia or misplaced loyalty - is false economy when you consider you could easily get a better rate on your hard-earned cash by switching it to another provider.

The credit crunch has been cruel to savers, and in the current low-rate environment you may be feeling confused about where to move your money.

But whatever you do, don't leave it languishing in a poorly-paying variable savings account, as unlike other areas of customer service, loyalty is not rewarded in the savings market.

In fact, banks and building societies tend to reserve their very best rates for new customers, while ignoring loyal savers, so it’s important to review your accounts on a regular basis, and be prepared to switch regularly to get the best rate.

Read the Ts and Cs

Savers can now choose from a spate of new easy access accounts, but when shopping around, you need to be aware that savings providers often try to lure potential customers in with table-topping rates.

The problem is, that while these may seem very appealing, a market-leading account one week might well become a poorly paying account the next - so you need to keep a very close eye on the rate you are getting.

It is also important to watch out for the terms and conditions attached - such as withdrawal restrictions and penalties - as these are becoming increasingly complicated, and could cost you money.

Beware of bonuses

Some accounts that feature in the best buy tables also include eye-catching introductory bonuses to draw you in.

In some cases, the bonus may be fixed which offers some peace of mind, but if it is variable, that bonus could be reduced at any time; either way, the bonus will fall away after a certain period, potentially leaving you earning a paltry rate.

In the current low-rate environment,  it makes sense to take advantage of bonuses to boost your returns, but you must remain savvy, and reassess the account from time to time. Make a diary note of when the bonus period ends and be prepared to switch.

Move your money

If you're not earning a healthy return on your nest egg, you need to move to another provider to benefit from the best rates on offer. This is especially important given that some older accounts may pay as little as 0.01 per cent on a £1,000 balance.

If you have held your variable rate savings account for a while, you will almost certainly get a better deal by transferring your funds to a new account.

Pick of the bunch

Citibank is now offering the top easy access rate on its Flexible Saver account (Issue 6) and has increased its rate to 3.25 per cent gross (3.30% AER) including a 2.25 per cent (2.3%) bonus.

ING Direct has recently increased the rate on its savings account to 3.2 per cent, and although this does not include a fixed bonus per se, the rate is fixed for a year.

Alliance & Leicester is paying 3.15 per cent on its Online Saver 5 which includes a variable rate bonus of up to 2.65 per cent for a year, while Birmingham Midshires is also paying 3.15 per cent on its Telephone Extra account including a bonus of 2.65 per cent for 12 months.

Elsewhere, Sainsbury's Banks is paying 3 per cent on its Online Saver, but this requires a minimum balance of £1,000, and only permits a maximum of three withdrawals per year.

Act now

Don't sit back and leave your savings idling away in a low-paying account, take the opportunity now to wake up to what's happening and get better returns on your hard-earned cash.

Loyalty doesn't pay - so be prepared to do your research and take your custom elsewhere.

*Rates correct as of 16 September 2009