Instant access accounts rival bonds for savings

Friday, 03 July 2009 12:00

Several high street banks and building societies are taking on popular fixed-rate bonds with a range of competitive instant access accounts.

Alliance & Leicester is the latest bank to offer a high interest rate on a penalty-free online savings account, offering 3.15 per cent from £1.

Coventry Building Society has also launched a new instant access account today with its eSave account, available to the over-50s, which is paying a market-leading rate of 3.25 per cent.

Both accounts offer unlimited penalty-free withdrawals and the rate is fixed for 12 months.

They are also based on bonus rates for the first year, which means the interest rate will drop sharply after 12 months is up.

The accounts now rival a range of fixed-rate bonds, which are available offering over four per cent, but require savers to keep their cash locked away for up to five years, and often demand a substantial deposit.

Kevin Mountford, head of banking at moneysupermarket.com, said: "This level of activity is unusual given the Bank of England base rate hasn't changed since March. But it's great news for savers, particularly those who don't have money they can afford to lock away in a fixed rate account.

"Providers are still desperate for our cash so the competition is likely to remain strong for some time to come."

Andrew Hagger, of Moneynet.co.uk, said the accounts offer a "great opportunity" for short-term savings.

He added: "However, it is vital that savers make a diary note to review their account when the bonus element is withdrawn next year otherwise they could find themselves earning a poor rate of return and undoing all the benefit received in the first 12 months.

"With a renewed appetite for retail savings now being seen across both fixed rate and instant access savings markets, I wouldn't be surprised to see more providers come out with rates to challenge these offers in the next couple of weeks."

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