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Spend & Save

Money Insider: Santander – up front with savings interest


It's been a hive of activity in the savings market over the last couple of weeks, with some cracking new fixed rates being launched as well as an eye-catching new promotion from the Spanish banking giant Santander.

As part of its continued aggressive drive to win more personal bank accounts, Santander has come up with a new product which will pay three years' worth of savings interest up front for customers with or who open a Santander current account.

As well as the requirement to hold a current account with the bank, you'll also need a minimum savings balance of £10,000 to be eligible to open one of the new Upfront Savings Bonds.

The option to be able to earn three years' worth of interest in advance, even though the rate is less than market leading, will no doubt appeal to some savers, particularly those who rely on their interest income to help with day-to-day living costs.

You can currently get better fixed rates of 4.30% gross with Yorkshire Bank and 4.15% gross with AA Savings where a £12,000 balance would net you £1,238 and £1,195 respectively after three years, compared with the £1,000 net which you'd receive under the Santander deal.

The concept is unique in the UK savings market and even though the rate being offered is not a best buy, I'm sure some people will be content to accept a lower return as a trade-off for 3 years' worth of interest up front.

As well as a means of increasing its share of the current account market, the maximum savings limit of £2m could bring in a significant amount of new credit balances for Santander too.

It's an interesting move in what has become a lacklustre and sterile savings market. Time will tell if it's enough of a carrot to convince many people to switch their bank account.

It's refreshing to see this sort of innovation, giving savings customers more options in this low interest rate environment, and comes a little after a month after high-street rival Halifax launched its monthly Savers Prize Draw. Maybe it will inspire other providers to respond with their own fresh ideas.

Coventry launches Poppy Bond

The latest edition of the popular Poppy Bond from Coventry Building Society is now on sale, paying 3.55% gross/AER fixed until 30 April 2013.

The bond can be opened in branch, online or by phone, and has a minimum balance requirement of just £1. There is a monthly interest option of the account available, but as with the majority of fixed rate accounts, be aware that there is no access to your capital until the bond matures.

The rate on this 18-month deal is competitive but doesn't live up to the current best buy rates for one and two year bonds. However with this particular savings bond, it's not all about what's in it for the customer, it also delivers an important contribution to one of our most worthy charities.

Coventry Building Society will donate 0.05% of the total amount invested in this bond to the Royal British Legion. Previous bond sales have raised in excess of £5m for this cause since the poppy product range was launched in 2008. The much-valued work of the Royal British Legion is as important and relevant now as it has ever been and let's hope this latest bond leads to another significant donation.

Clydesdale and Yorkshire blitz fixed rate best buys

Savers looking for a decent return on their fixed rate savings will welcome the latest range of table-topping deals from Yorkshire Bank and Clydesdale Bank.

It's quite normal to see a bank or building society launch a one-off best buy deal targeted at a specific term, but Yorkshire Bank and Clydesdale Bank has thrown down the gauntlet across the board, offering the top rate for 1 year (3.60%), 2 year (4.00%), 3 year (4.30%) and 5 year (4.70%) bonds.

There are monthly interest versions of these bonds available, but this facility is only available if you have a separate account with Yorkshire Bank for the interest to be paid to.

The rates for 1 and 2 year bonds are still only paying barely half what they were three years ago, but it's time to move on and accept that we're not going to see savings rates at that level for some considerable time.

We need more examples of this sort of competition to drive up interest rates. It will be interesting to see how long these products remain on sale and whether it will provoke a positive reaction from the rest of the market.

Andrew Hagger – Moneynet.co.uk