Take Advantage Of Savings Bonus Rates
The recent reduction in interest rates to historically low levels has meant that savers have taken quite a hit. Those of us with savings in variable rate accounts (which is most savers, as opposed to investors) have seen the returns on our money dwindle dramatically.
Only a year ago, you could find instant access accounts with AERs as high as 6.75%, and notice accounts and bonds with even better rates were widely available. Today, the picture couldn't be more different.
Low Base Rate
At the time of writing, the base rate stands at 1.5%, and many accounts have dropped their rates right down to this level as banks strive to rebalance their accounts. Even many 'base beater' type accounts with a guarantee to have an AER higher than the Bank of England rate are only beating it by a nominal figure such as 0.05%.
In such a landscape, the search to find somewhere to put savings is important if we want to prevent the value from actually shrinking once inflation and tax have been accounted for - never mind realising a decent return on the investment. Perhaps the one ray of light may come from the banks' use of a promotional feature: the bonus rate.
Bonus Rates and Best Buy Savings
Bonus rates are simply an additional rate of interest applied to the account's normal underlying rate, which only lasts for a certain period. Using this device, a bank can quite legally advertise an account as having a higher AER than the long term one, so long as they mention that this rate includes a time-limited bonus.
Bonus rates can help a bank propell its account into the 'best buy savings' tables - and while it's essentially just a marketing strategy, there's no reason why savers can't take advantage by putting their cash into an account with a good bonus rate, and then switching to a new bonus account when the introductory bonus rate ends.
Just be sure that you make a note in your diary when the bonus period is up so that you have time to open a new account with a better rate, and transfer your savings to it before the old account's rate drops down to the base rate.
