'I disagree with The Sunday Times' call to ban savings bonuses' blog discussion

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




Please click 'post reply' to discuss below.

Comments

  • VT82
    VT82 Posts: 1,078
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    I couldn't agree more. About every one of your points. (For once!)

    I haven't read the article in question, but it sounds like another example of the media (or, just as frequently these days, a politician) jumping on a bandwagon to try and claim they have captured the public mood, when in reality they have no real grasp of the issue.
  • SnowMan
    SnowMan Posts: 3,339
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    edited 13 February 2012 at 2:56PM
    I've always gone for accounts with bonuses over clean rates regardless of the rate.

    So if at a point in time the best accounts were a 3% variable clean account and a 3% variable bonus account (which included a 12 month bonus of 2%) say I would go for the bonus account every time.

    It is a more honest and open way for a savings institution to have the bonus, rather than subjecting an account holder to arbitrary decreases to a clean account rate. Of course the variable element can go down during the bonus period with the bonus account but in practice they don't seem to very often (because the institution knows the rate is time limited).

    Perhaps it is time to change the terminology 'clean' as that seems to imply or at least create the impression with some that the bonus account is 'dirty'? 'Clear of bonus' could be used instead although that is two extra words.

    Haven't seen the article but it sounds a ridiculous campaign to ban savings bonuses.
    I came, I saw, I melted
  • Reaper
    Reaper Posts: 7,275
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    All that really matters is that people understand what interest rate they are getting. There was a MSE campaign was to force banks to display interest rates on statements and when you log in to your account online. That seems to have fallen by the wayside which is sad as that is the ideal solution.
  • Stephen_Leak
    Stephen_Leak Posts: 8,762
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    edited 13 February 2012 at 8:14PM
    I agree too.

    It's just another example of the old political trick of making you afraid of something and then telling you who else is to blame for it.

    Adding one number to another isn't rocket science. Well, at least not for me. I can even do it without a calculator. Mind you, I do seem to be one of the last generations in this country that had a proper education.

    In the last week, I've just "ditched and switched" my main easy access savings account from the Post Office (I can't remember the individual figures now, but the total was 2.9%) to Santander (0.5% basic + 2.6% bonus = 3.1%).

    Next month, when the new ISAs hit the streets, it'll be the turn of my ISA. This time next year, it's back to the easy access account.

    Everyone ought to have a hobby. :)
    The acquisition of wealth is no longer the driving force in my life. :)
  • oldvicar
    oldvicar Posts: 1,088 Forumite
    edited 14 February 2012 at 8:53AM
    I tend to agree with Martin's points about how to use these accounts now that the bulk of the return is the Bonus, not the underlying rate. I want to thank him for helping me evaluate these accounts in this way.

    But apart from the fact that I am more savvy and more likely to chase a reasonable rate than the average person, so I do well from the situation, I do regret that they exist and would much prefer a clean simple rate, along the lines of the proposition ING made when they first launched over here.

    There are particular problems with these accounts which offer high temporary bonus rates:

    1. What about protection for the stupid/lazy? Those attracted to invest by the high bonus rates who through laziness or stupidity or infirmity or any disadvantaging circumstances, especially those which may occur after opening the account, are then left high and dry when the bonus expires. I cannot properly reconcile Martin's views that on the one hand a Bonus whose expiry you need to diarise and act upon is a good thing, with his earlier views that the disadvantaged need protecting.

    2. They are a scam - in the sense that perhaps one of their main achievements is to circumvent recent regulations which were introduced for consumer protection. Specifically, by offering an account with a temporary bonus, the banks circumvent the requirement to actively inform depositors when the returns they are paying them are reduced by 0.25% more than any change in BoE rate (although decent banks do write to inform of a bonus ending, they don't have to). These Bonus accounts did not really exist in the same way before the regulations were introduced. It is another great mis-selling "scandal" in the making. Lots of opportunity for campaigning and fighting corners there! [For the cogniscenti, why not just call all these Bonus accounts 'Liquid Gold' - the changes to savers returns would be similar]

    3. They can complicate and confuse people. Specifically there were major savings institutions which introduced accounts which pay a bonus rate until a fixed date, rather than for a fixed term. Take for example a fictitious account launching tomorrow which promises to pay 0.1% pa variable plus 3.0% pa fixed bonus until 5th April 2013. The advert for this of course includes information such as mentioning the account pays a total return of 3.1% Gross, 3.1% AER. So far so good. Except that after 6 April 2012 every time the advert for this account appears or when people with the account check on-line and are presented with the 'current' rate (as has been campaigned for) the bank ties itself in knots trying to present the effect on the AER of a bonus of 3.0% pa which actually lasts for less than a year . Nationwide for example really got into a twist with this. But I see that they have now managed to get around this with their latest accounts (eg online ISA 2) by not offering a bonus rate at all. Instead they offer a 'fixed introductory rate until dd/mm/yyyy which then reverts to a variable rate'. This is an easy access acount, not to be confused with a fixed term account which upon maturity becomes an easy access account - quite a diferent beast.

    In one sense the 'Bonus' rate account is already a dying breed, being usurped by the fixed introductory rate followed by a variable rate, as in the Nationwide's example above. The Nationwide is ahead of the curve as usual !!
  • Having gone for an account with a one year bonus rate last year, I was delighted to receive a letter last week from the provider telling me clearly that the rate would drop in three months time.
    This clarity from banks is something new!
    It also gives me plenty of time to shop around to move the account at that point.
  • Introductory bonuses are currently the only way to get a little return on savings made. I strongly feel they should stay with us especially with such a dismal base rate.
    Yes they can be confusing to follow but as Martin says, so long as you diarise to ditch and switch you earn better than most clean rate accounts
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