What does it mean when banks offer "bonus rate"?

slicendice

Hi everyone

I currently have my savings in an ING Direct account, which used to have a very good interest rate. Obviously, like just about everywhere else, their rates have plummeted recently (for existing customers at least) so I'm looking to see what better offers there are out there.

Please forgive my ignorance on these things, but I've seen a number of banks offering a "bonus rate" - for example, bonus rate of 3.2% for 12 months then reverting to variable rate of 1%. What exactly does this mean? Say I opened a new savings account with an offer like this, and the establishment paid their interest monthly - does it simply mean that I will get 3.2% interest for the first 12 months? Or does it mean I won't get the 3.2% bonus until I've had the account for 12 months? And if that is the case, if I have to withdraw my money after, say, 8 months will I lose all of the bonus interest? Or will it get prorated so that I'll get 8 months of 3.2% interest?

Thanks very much

GlasWolf

Basically you have a bank account with 3.2% interest for 12 months, at which point it reverts to 1%. Check the account conditions for whether there are any withdrawal/closure restrictions - some only allow a few withdrawals a year, others have a minimum balance that must be maintained and so on.

Note also whether the interest and bonus rate are variable. I don't recall an account having a variable bonus rate changed mid-term but it's possible. In other words, keep an eye on the rate throughout the year as it may well change.

jem16

It varies. With some bonus rates you have to keep the money there for the 12 months. With others it doesn't matter and you will get the bonus rate no matter what.

You need to read the T&C of each account.

Masomnia

Welcome to MSE

It is pretty confusing, so all I can really say is check the terms and conditions of each account, as they're all different. If you're thinking about the Egg account, for example, then you don't have to do anything to get the bonus rate, except make sure that the money isn't internally transferred from one Egg account to another. So in that case, yes you get the 3.25% rate for 12 months, and from then on get the lower rate. So you wouldn't lose the bonus interest.

Some accounts you would lose the extra interest, but that would be clear in the terms and conditions. So like my Halifax ISA, it's 3% fixed, but a lot less if I make more than 4 withdrawals.

If you're unsure about a particular account I'm sure anyone on here would be happy to have a look for you to confirm how it works and put your mind at rest!