Introductory bonuses can make the highest savings rate a poor deal after the promotion ends, unless customers remember to switch their money.
A tempting headline rate on a savings account can be misleading if most of the return comes from a short-lived bonus. In some cases, savers who choose a 5 per cent account over a 4 per cent one can end up with less interest after a year, simply because the higher rate does not last. That is the central lesson from calculations by Moneyfactscompare.co.uk, which show how much the outcome depends on the size of the balance, the length of the bonus and whether the saver remembers to move money once the introductory offer expires.
Starling Bank’s Easy Saver illustrates the issue. According to the bank, eligible new customers can receive 5 per cent AER for six months, but that rate then falls to 2.5 per cent if the underlying variable rate is unchanged. Moneyfactscompare.co.uk calculated that someone leaving £10,000 untouched in that account for a full year would earn £374.25, compared with £400 from an account paying 4 per cent throughout. If the saver switched to a 4 per cent account when the bonus ended, the annual return would rise to £449.88. The same pattern holds on smaller balances: the six-month bonus can still be useful, but only if the saver acts before the rate drops.
That is why savings experts say the headline number is only part of the story. Anna Bowes, a savings specialist at The Private Office, told The Independent that bonuses can work well for people prepared to monitor their money, but warned that a short promotional period is easy to miss. Her point is reinforced by the Financial Conduct Authority’s Cash Savings Market Review, which found that only 23 per cent of savers surveyed in mid-2023 had moved accounts in the previous six months to secure a better rate. In other words, many people leave cash where it is even when a higher return is available.
For savers who are less likely to switch, longer bonus periods or simpler products may be more practical. Zopa’s Limited Access pot currently offers eligible new customers 4.56 per cent AER, made up of a variable underlying rate plus a 12-month bonus, according to the bank. Cahoot’s Sunny Day Saver pays 5 per cent on balances up to £3,000, but nothing on money above that level, which means the account suits smaller emergency funds rather than larger deposits. As with any cash account, the underlying rules matter just as much as the initial rate: withdrawal limits, balance caps and bonus expiry dates can all change the real return.
Rachel Springall of Moneyfactscompare.co.uk said the best rate on the market is not always the best choice if the account’s terms do not fit the saver’s needs, especially where withdrawals are restricted. The practical answer, she added, is to check the small print before opening an account and to set a reminder for when any bonus expires. For savers, the difference between a good deal and a poor one is often not the advertised percentage, but whether they are willing and able to manage the account actively over time.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
