Savings interest rates over 5% 'misleading'

While there are 38 instant-access savings accounts offering interest rates of more than five per cent, many of these rely on bonuses to do this.

New figures from Sainsbury’s Bank show that when the introductory bonuses are removed from these accounts none offer an ongoing rate this high.

"Interest rates of five per cent or more are very attractive but some of the accounts paying these are heavily reliant on short-term bonuses or restrict access to your savings," said Peter Wood, Sainsbury’s Bank director of savings.

"Before choosing an account, make sure you understand and accept what your interest rate is dependent upon otherwise you could be in for a nasty surprise when it drops."

Since the Bank of England raised the UK base rate in August, 31 instant/easy access and notice accounts have started offering interest rates of five per cent or more, Sainsbury's reports.

However, 18 of the 38 accounts now offering these high interest rates rely on introductory bonuses of on average 0.595 per cent. Without these bonuses they all pay less than five per cent interest.

Additionally, 23 of the other savings accounts offering interest of more than five per cent come with restrictive terms and conditions.

The most common restriction - which applies to 11 of the 38 accounts - is to impose a notice period for withdrawing money or face a penalty for doing so.

Other restrictions applied include withdrawing the introductory bonus if more than a certain number of withdrawals are made and restricting the account to savers of a particular age.

Just eight of the 38 accounts offering interest of more than five per cent do not rely on introductory bonuses or have restrictive terms and conditions attached to them. XXX