Fed up with bank rip-offs? It pays off to shop around

The banks come in for a lot of stick over their rip-off mentality and there are few who would defend them.  

But until consumers wake up and take an interest in their finances the rip-off will continue; people are increasingly apathetic in shopping around and switching to a better place to put their savings. 

Instant Access

Given that most people’s will have relatively small amounts of ‘rainy day’ money which they may need to access in a hurry the best easy access account at the moment comes from the AA which is paying 2.8% on its Internet Extra account for sums off £1 or more.  Just below are Ing Direct’s Savings Account, Tesco Bank’s Internet Saver, Santander’s  Esavings Bond issue 2 and BMSavings Telephone Extra account all paying 2.75%.  Terms and conditions vary so check before you invest. 

Some of these accounts like Santander’s Esavings Bond include a bonus in the headline rate so check as you may have to move after 12 months.

Accounts which have consistently paid the best rates over the past year – and don’t massage the rate with bonuses – include Intelligent Finance’s Isaver account, currently offering 2.49% on sums of £1 or more as well as Stroud & Swindon’s Postal Account and AK Bank’s Savings Account, both paying 2.25%.

Bonds

There is very little innovation in the savings market so the new ‘tracker bond’ from Coventry Building Society is a welcome addition to savers’ portfolios and could avoid the necessity to keep switching account.  Tracker mortgages are a relatively new innovation in the mortgage market and now dominate, but until now none of the deposit taking institutions wanted to commit to tracker savings.

The new tracker bond is a two year investment, guaranteed to pay a minimum of 3.2% gross and will track Bank Base Rate plus 2.2% until 30th December 2012.  The only drawback is that the tracking does not start until BBR rises to 1%.  There is no cap on the interest rate paid and you can make withdrawals – but with 90 days loss of interest.  Minimum investment is £1 with a maximum of £250,000 and there is a monthly income option.

Customers can apply by visiting www.thecoventry.co.uk, or call 0845 7665522.

Santander seems to have had the same idea at the same time and is also launching a tracker bond paying 2.5% above BBR which gives a current pay rate of 3% gross – but only until 1st September 2011.  The account is only available by telephoning 0800 234 6065 begin_of_the_skype_highlighting or at a Santander or Alliance & Leicester branch.

The other problem is that to qualify you must have, or open, a primary current account, or be a mortgage or investment customers.  The tracker bond is available to new current account customers who switch using the Account Transfer Service.  Only this week consumer champion Which? highlighted the enormous growth in ‘tied’ products and as the banks face new entrants to the market, these ties are likely to become even more common.

Which? points out that in some cases tied products offer poor value-for-money, as the products they are tied to may not be the best available. 

Fixed Rate Bonds

If trackers are not for you, the best one-year fixed rate bond comes from ICICI Bank which is paying 3.1% on sums of £1,000 or more on its online HiSave account.  Accounts can be opened at www.hisave.co.uk.  Raphael’s Bank is also paying the same rate on its one year fixed rate bond on sums of £5,000 or more – but this is not available online, only by post or at a branch.  Full details at www.raphaelsbank.com.  For those who have never heard of Raphaelsbank, it is an old established UK bank and the bond is covered by the Financial Services Compensation Scheme which gives protection for the first £50,000 of deposits.