Easy access savings accounts drop interest rates by 60%

Easy access savings accounts are a popular choice for savers. They offer a better return on your cash than keeping it in your current account, without restricting the ease with which you can get your hands on your money, as is the case with bonds.

However, my research has shown once again why savvy savers need to move their cash to a new account on a yearly basis.


Plunging interest rates

I've had a look back at the top 15 easy access savings accounts from 18 months ago to see how they compare.

The top rate then was with the Coventry BS Family Saver. This has sunk from 3% to 2% after a 12-month bonus of one percentage point ended.

Of the 15 accounts, the one with the highest rate today is the BM Savings e-Saver. This paid 2.78% 18 months ago - and it pays 2.78% today. This account was one of the seven that did not have an introductory bonus.

The BM Savings e-Saver would have paid the most interest over 18 months at perhaps £170 to a basic-rate taxpayer on a £5,000 deposit. However, up to 15 months it will still have paid less interest than the Coventry BS Saver.

With other accounts on the list, such as AA internet Extra, you could have earned as little as £120.



Bonus versus non-bonus

18 months ago, eight of the 15 accounts had 12-month bonuses paying additional interest of between 1% and 2.3%. Six of these paid more interest than the highest paying account with no bonus.

18 months later, the tables have completely turned. While none of the accounts with bonuses have reduced their interest rates, all of the bonuses have expired, reducing the interest paid by six-tenths, on average.

In total, five of the seven non-bonus accounts now pay a better interest rate than even the top bonus-paying account.

Only two of the seven accounts that didn't pay bonuses have substantially reduced their rates, although another two have begun to whittle them downwards.

Note that easy access accounts without bonuses more often come with the catch of limited withdrawals. Make more than a specified number of withdrawals in a year – usually no more than four but sometimes as little as one – and you'll be punished with loss of interest. Other limited accounts allow you free withdrawals in one month each year only.



Banks versus building societies

The accounts without bonuses are dominated by building societies, accounting for four of the seven. Another goes to Sainsbury's Finance and two more to banks.

The accounts with bonuses are dominated by banks, with six banks and two building societies.



How these accounts compare to the best today

Everyone who got one of those accounts 18 months ago would earn more if they switched again.

Interestingly, all of the top accounts today pay bonuses, which shows how popular they're becoming with the financial services industry.

The top paying account that I could find was the latest issue of the Derbyshire BS NetSaver, paying 3.06% in total. This includes a bonus of 2.06% lasting 14 months instead of the traditional 12. You can make unlimited withdrawals and can save from just £1.

ING Direct Savings Account offers more certainty over a year, paying a fixed bonus of 2.51% and a total interest rate of 3.05%. This also offers unlimited withdrawals and you can save from £1.

The highest paying account without a bonus for new customers is the Saffron Building Society e-Saver Account, paying 2.76%. You can make unlimited withdrawals and save from £10.



Which is best?

If, like me, you shop around every year to see what the best interest rate is, the easy access accounts with bonuses – with their higher initial rates – work out best. If you're unwilling to shop around regularly, go for an account with no bonuses.

The top 15 accounts from 18 months ago

Account

Interest rate in Feb 2011

Interest rate in Aug 2012

Bonus

Limited withdrawals

Coventry BS Family Saver

3%

2%

Yes

No

Nationwide MySave Online Plus

2.95%

1.51%

Yes

Yes

Post Office Online Saver

2.9%

1.65%

Yes

No

Santander eSaver

2.9%

0.5%

Yes

No

ING Direct Savings Account

2.8%

0.5%

Yes

No

AA Internet Extra

2.8%

0.5%

Yes

No

BM Savings e-Saver

2.78%

2.78%

No

No

Saga Internet Saver (1% bonus)

2.75%

1.75%

Yes

No

Manchester BS Premier Instant

2.71%

1.75% (higher now if you save more than £40k)

No

Yes

Tesco Bank Internet Saver

2.7%

1.25%

Yes

No

Newcastle BS Online Access Saver

2.7%

0.5%

No

No

Halifax Web Saver Extra

2.7%

2.3%

No

Yes

Sainsbury's Finance Online Saver

2.7%

2.7%

No

Yes

WestBromwich BS WebSave Plus

2.61%

2.36%

No

Yes

Chelsea BS e-Saver Reward

2.6%

2.6%

No

Yes