Why savers should be going off online

The lure of introductory bonuses are disguising the poor interest rates on offer from internet-only savings accounts. Julian Knight reports

The brave new world of internet savings accounts promised so much. Choosing to bank online would cut the costs of providers who in turn would pass this on to you in the form of higher rates. But exclusive research carried out for the Independent on Sunday shows it isn't working out like this, with internet-only savings actually trailing postal, telephone and even some branch-based accounts in terms of the rates paid.

The analysis of the top 10 easy-access savings accounts from Moneyfacts.co.uk which do not pay an introductory bonus shows that in six instances the offline account beats the online-only account for rate. In the other four cases offline and online pay the same but in no instances does an online account rate win through.

As for the top easy-access individual savings accounts the picture is even starker with offline accounts beating online across the board. It is only when headline-grabbing introductory bonuses are factored in that online outperforms and this advantage can soon disappear.

"About one in five accounts has an introductory bonus and many of these can be accessed online but the overwhelming majority only offer a bonus for a year, so on the first anniversary of the opening it's best to switch as the rates can suddenly become quite poor, whether they are online only or not," David Black, banking analyst at Defaqto, says.

Last week, the malaise surrounding internet-only accounts was thrown into sharp focus when the Co-operative's Smile online-only banking brand cut the rate it pays on its current account to zero, leaving the best-buy, in terms of credit interest, current accounts firmly branch based. "Brands like Smile and First Direct, which dispensed with paying interest a while back, sell themselves on service rather than rate but it's a little surprising that the cost savings of being internet based are not being passed on," Andrew Hagger, savings expert at Moneynet said.

Mr Hagger reckons the money that in the past rewarded those who chose to go online is now being directed into introductory bonuses to bring in new cash, to help prop up banks' balance sheets. "Securing funding is the key for banks and building societies. This is much more of a priority than say cost savings on staffing from bringing in more money through online account offers. The truth is that as a result of the financial crisis online banking has not delivered for savers all we had hoped for a decade ago," he says.

It seems that the room for manoeuvre for providers in terms of rate they can offer is so tight that it's difficult for online accounts to stand out any more. "When Bank of England rates were at 5 or 5.5 per cent there was more of a range of rates that could be paid and options for new players to come into the market and be substantially best buy, normally through online. But with rates at 0.5 per cent there is so little room for providers to work with," Mr Hagger says.

This is borne out through recent events. A few weeks ago the best-buy easy-access savings account, with an introductory bonus, came from the Coventry building society and paid 3.15 per cent. This was then trumped by the Post Office, which offered 3.17 per cent. That is a difference of just 0.02 per cent, or £2 a year, in extra interest a year for every £10,000 saved – very meagre pickings.

Online doesn't seem to carry the cachet for providers it once did, apart from accounts with an introductory bonus which are geared towards those rate hunters looking to shift money to maximise returns.

But Louise Holmes, a savings expert at Moneyfacts.co.uk reckons in the post-credit crunch world providers are looking for cash regardless of which route it comes in: "Providers are keen to be seen offering competitive products to all customers, not just necessarily to those online. Despite the online phenomenon, many people still prefer to visit their local branch or speak to a real person to discuss their savings options and conduct business.

"Offering decent rates to savers who may prefer to conduct business in a traditional way demonstrates providers are catering to all their savers' needs and projects the image of a 'good, considerate provider'," Ms Holmes says.

But whether you are saving or banking online, over the phone or in branch the message seems clear: if you want to maximise returns then loyalty does not pay. The average return on a savings account for instant access is higher online than in branch – 0.89 per cent offline while 2.15 per cent online. But this reflects large numbers of long-standing branch and telephone accounts which once paid a high rate but have been allowed to wither on the vine.

Mr Black says: "if you have been in the same accounts for a couple of years or longer ... you will definitely benefit from switching."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss