Is Halifax's new £100,000 draw worth the punt?
Now it's not just Premium Bond savers who can win a life-changing sum – but not everyone is thrilled with the bank's new wheeze. Julian Knight reports
Sunday 25 September 2011
Everyone likes getting something for nothing, or at least so Halifax is hoping.
That is why the bank, which had to be rescued first by Lloyds and then by the taxpayer, has launched a new savings deal which has similarities to National Savings' evergreen and ever-popular Premium Bond.
New and existing savers at Halifax who have more than £5,000 on deposit are, from 1 December, going to be entered into a monthly prize draw to win amounts up to and including £100,000.
The draw will be available to UK residents over the age of 18, excluding Northern Ireland, which has different gambling laws.
Customers must actively opt into the prize draw – either online, by phone or in their branch. If savers don't choose to enter the draw, they will not have a chance of winning a potentially life-changing amount.
The Halifax scheme is the first of its type in the UK, but, for several years, banks in the US, Australia and New Zealand have run similar incentives to save.
"In these countries, we have seen that it has worked and given a real lift to the savings culture," said Simon Kenyon, the director of savings at Halifax. "This isn't a gimmick. We are committing to be out there for the next 12 months, and, crucially, anyone signing up will continue to receive their interest, as per usual."
With NS&I's Premium Bonds, savers forego the interest in the hope of scooping a monthly cash prize, which can be as high as £1m. Those with the maximum bond holding of £30,000 can expect to win relatively frequently, presuming average luck. But these are normally only small prizes. On average, Premium Bond savers receive less in prize money than they would get in interest if their money was held in a best-buy account.
However, Halifax is not exactly offering something for nothing. Andrew Hagger, of price-comparison service Moneynet, said: "I'd say to the Halifax that, instead of offering this prize draw, why don't you just use the money to give savers a higher rate of interest?"
In response, Mr Kenyon said that the money involved would make little difference to rates when spread out over potentially hundreds of thousands of account holders. "We always aim, and I think succeed, in offering good rates of return, but the idea of this scheme is to do something totally different, which genuinely makes saving a little bit more fun."
Mr Hagger's own calculations put the potential cost in terms of lost interest to savers at around 0.1 per cent a year. "It's very much up to individual customers whether or not they think that it's a good idea for the Halifax to be doing this. However, as it equates to maybe £5 in lost interest for someone with the minimum holding of £5,000 on deposit they may feel that actually that's a price well worth paying in order to have a chance of winning £100,000, and other smaller prizes down to £100," he said.
"What's more, the chances will be better under this scheme than, say, Premium Bonds, because only those that register can enter, rather than everyone being automatically enrolled into the prize draw."
The prize-draw initiative is all part of what Lloyds Banking Group chief executive Antonio Horta-Osorio has described as Halifax trying to achieve "challenger brand" status. Basically, that's distinguishing Halifax from Lloyds and setting out to offer something different and innovative in the marketplace. "Halifax challenger brand proposition was first seen when it became the first bank to say that it would pay interest on Individual Savings Account transfers from day one. This prize draw needs to be seen in this context," Mr Hagger said.
But regardless of what Halifax is trying to achieve, some experts have real concerns over the prize-draw idea.
Michelle Slade, of the financial information service Moneyfacts, said: "Innovation in the savings market is always welcome and it will be interesting to see if they attract new customers – who may, perhaps, have thought about National Savings – with this. But customers need to be aware that whereas Halifax savings rates are quite good, they can usually be beaten elsewhere. If you don't win a prize then you will more than likely be losing out on interest by not putting your money with a market leader.
"Take an account with £1,000 in it; if Halifax is paying 1 per cent below the best-buy account, then that equates to £100 a year in interest. That's quite a lot of money to potentially give up."
But Ms Slade concludes that: "If savers are happy with the rate being offered by Halifax on their savings then the chance of winning in the draw will be an added incentive to keep at least £5,000 in the account."
A trawl through Halifax's savings rates reveals that in only one product area – four-year fixed-rate ISAs, which isn't a very competitive sector – is it a best buy. In all other areas Halifax comes up at least a little short. In the case of one-year fixed-rate bonds and one-year fixed-rate ISAs, Halifax is over a percentage point off the pace.
What's more, as Ms Slade points out, as the Halifax is the biggest savings-account provider in the UK, there are likely to be an awful lot of people signing up to the prize draw. "As a result, the chances of savers winning a prize, particularly the top prize, are very slim."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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