9% savings account launched - but what's the catch?

I wouldn’t necessarily write about an account like this as while the interest rate is eye-catching, the account itself has limited appeal. But the press has been all over it, so it’s probably a good idea to review what this is and while we’re at it, take a look at the other top rates on the markets and the tricks and trip-ups that they might bring in their quest to be at the top of the tables.

So, what is this 9% account?

Saffron Building Society has launched an account called the Member’s Month Loyalty Saver.

It’s a regular savings account that is only available to those savers who have been a member of the Building Society since 1st June 2022 and if you are eligible, you can deposit up to £50 a month for 12 months. I really like that Saffron is rewarding those loyal customers by paying this headline grabbing rate – but equally it’s important to realise that the maximum interest you could earn on this account is £29.25.

This is because with a fixed term regular saver account, you will only earn the full 9% on the first deposit of £50. All subsequent deposits will earn a proportion of the 9% as the money will only be in the account for a proportion of the year! That said, for those who are eligible and who are looking to squeeze a little more out of their savings, they could use this in tandem with a top paying easy access account – to take advantage of both the interest due on the regular savings account and the best easy access account that offers unlimited withdrawals.

This is because if you have £600 (the total you could deposit into the Member’s Monthly Loyalty Saver) and were to leave it in your current account with a Direct Debit to pay £50 a month into the Saffron Account, you would earn £29.25 as the diminishing balance on the current account is likely to be earning no interest (unless you hold a high interest paying current account).

If you simply left that £600 in the top 1-year bond paying 5.10% AER – (Atom’s minimum deposit is £50, whereas the higher paying accounts have minimums of £1,000 or £10,000), you would earn £30.60 – so slightly more.

But if the diminishing balance were in a top paying unrestricted easy access account (the Chip Instant Access Account is paying 3.82%), you could earn an extra £10.51 on the diminishing balance in addition to the £29.25 on the Saffron account.

Saffron also offers its Small Saver regular saver account, which is available to anyone, paying a rate of 4.80% AER. This is competitive but there are a couple of better regular savings accounts available that do not require you to hold a bank account with the provider, namely Halifax’s Regular Saver which is paying 5.50% on regular monthly deposits of up to £250 and Nationwide Building Society’s Start to Save account which is paying 5.25% on deposits of up to £50 per month.

What are the other top paying accounts and are there catches to watch out for?

Easy Access

The easy access market is full of accounts that offer top rates – but only if you watch out for the catches. As long as you adhere to the terms and conditions, you should be ok. But fall foul and you could earn much less than you expected or, you might not have the access to your money that you thought!

• Restricted access

At the moment, the top paying accounts on our easy access best buy table are both paying a whopping 4% but they restrict the number of penalty free withdrawals that you can make. The Coventry Four Access Saver (Online) allows four withdrawals a year – any more and there is a 50-day interest charge. The West Brom Double Access Account (Issue 2), as the name once again indicates, allows two withdrawals a year – if you make more, the rate of interest earned will drop to 2.20% for the remainder if the year. In fact there are a number of these restricted access account currently available, paying competitive rates and the number of withdrawals allowed and the penalties that apply for exceeding the limit will vary from account to account, but the restriction usually ranges from between one to six or even 12 withdrawals a year. 

HSBC has just increased the rate it’s paying on its Online Bonus Savings Account to 4% on balances of up to £10,000, falling to 2.30% if the balance is more than £10,000. But the rate will fall further, to 1.35%, in any month where a withdrawal is made. So this account combines more than one potential hurdle to earning the advertised rate.

These restricted access accounts won’t be appropriate for everyone, but that said, if you don’t need regular access or indeed if you’d like to restrict yourself from dipping into your money willy-nilly, this type of account could be just the ticket.

But you can see that if are not fully familiar with the terms and conditions, you could end up earning less interest than you expected or not have access to your money when you need it.

• Bonuses

While bonus accounts are not as popular as they were, they do crop up from time to time. Bonus is probably a bit of a misleading term in the case of these accounts. What it actually means is that the rate paid is enhanced for a particular period of time, such as 12 months, after which the rate will drop to an underlying rate that is often much lower.

This type of account has been very popular in the past and for engaged savers a bonus account was a way to earn more interest – but all of the benefit can be eroded if the cash is not moved at the end of the bonus period to an another competitive account. Of course the provider is hoping that you’ll forget and will leave your cash to languish, earning a poor rate of interest.

• Multiple issues of the same account

Multiple issues of the same account can be a contentious subject – some people love them and some people hate them, and that is likely to depend on whether older issues are paying more or less that the account that is currently available in the ‘shop window’.

In a falling savings market this can be a benefit as it can take the provider a little time to pass on falling rates to the previous issues – but the opposite can be true in a rising market.

The bottom line is that it is important to realise if you have an account that has multiple issues as it is only a matter of time before your account becomes an old issue – and could therefore be earning a different rate.

It’s not just easy access accounts that you need to watch out for – notice accounts are another common type of account that will be issued various times.

• Tiered Accounts

Tiered accounts are those that pay different rates depending on how much you have deposited in the account. The most common type of tiering is that the more you hold, the more interest you will earn and that rate will apply to the whole balance. But this isn’t always the case as illustrated by the Yorkshire Building Society Rainy Day Saver account. This is currently paying 3.85% but only on the first £5,000. If you have more than £5,000 you’ll earn 3.35% on anything over £5,000, so the overall rate earned is blended. For example if you deposit £30,000 you’ll earn 3.85% on the first £5,000 and 3.35% on £25,000 – giving you a blended AER of 3.43%.

There are also some accounts that pay less on the whole balance if you breach a certain amount.

Notice Accounts

Apart from often releasing multiple issues of the same account, as mentioned earlier, as long as you understand how a notice account works, there are rarely additional features to watch out for. But it is important to recognise that in the majority of cases you MUST give the required notice in order to have access to your cash. For example, if you deposit cash into a 120 Day Notice account and were to give notice today, it could be four months before the money is sent back to you.

But, with variable rates of up to 4.75% AER available (QIB UK - via the Raisin Website is offering a 95 Day Notice Account paying 4.75% AER), these could be a good halfway house between having easy access with a lower interest rate and tying your cash up for a year or more.

Fixed Term Bonds

As with notice accounts, it’s not that there are tricks to these accounts, but not everyone realises that in the majority of cases there is simply NO ACCESS to your capital. Many people believe that they can take out their cash with a hefty penalty and which this was more common a few years ago - today is it much more unusual.

With interest rates continuing to rise, it is important to make sure you are earning the best rates you can find but you need to check behind the advertised rate to make sure that you will earn what you expect - that the account is fit for purpose.

The bottom line is that better rates can be found elsewhere, so you are likely to be better off if you shop around for the best rates.  You can find all the latest Best Buys for your savings here at our sister company, Savings Champion.

For anyone with £100,000 or more in savings, investments or pensions , we’re currently offering a free initial planning review to include a ‘cash flow forecast’ worth £500.  Find out more here.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The accounts and rates mentioned in this article are accurate and correct as of 15/06/2023.

The Financial Conduct Authority (FCA) does not regulate cash advice.