Post Office Savings - financially astute strategy or sharp practice?

dogfonos

Just noticed something interesting in the way P.O. Savings manage "interest" rates on their variable rate Online Savings accounts. Perhaps other savings institutions also do this?

Since February 2017 to date, P.O. Savings have had no less than eleven Online Saver accounts. Each new account succeeds the previous account which then becomes closed to new savers. Nothing particularly unusual about that, but I notice that nearly all these accounts (from Online Saver Issue 25 through to the current Online Saver Issue 34) offer the same basic rate of interest which is 0.25%AER. However, each issue offered a different bonus rate - valid for one year - which makes up the vast majority of the "interest" paid out.

Over this period of time (Spring 2017 to date) the Bank of England (BoE) base rate has increased from 0.25% to 0.50% in Nov. 2017 to the current 0.75% (as of Aug. 2018).

Before Online Saver Issue 25, I note that the interest rate was competitive (i.e. above BoE base rate) and no bonuses were paid. Seems there was a change of strategy from Issue 25 onwards.

So why do P.O. Savings use this method to pay a reasonably competitive rate of interest? Is it to reduce interest payouts to many (most?) of their savers, because when the account has been open one year, and the bonus elapsed, the underlying interest rate will be particularly low. There will likely be many savers currently receiving only 0.25% interest. I'm not aware this method of paying bonus and interest has been employed to such extremes before but would be interested to hear otherwise.

Begs the question: when is a variable interest rate account not a variable interest rate account?

eskbanker

They're far from alone in offering a better rate for an initial period of 12 months - Tesco have been doing this for quite a while with their Internet Saver products, Marcus has launched on the same basis and Nationwide's FlexDirect current account also uses the same principle.

There will probably be others - I wouldn't go as far as labelling it sharp practice and it's straightforward for savers just to treat these as one-year fixes that need to be reviewed at the end of the initial period, in much the same way that it's sensible to shop around annually (at least) for other purchases such as car insurance, energy deals, broadband, etc, where the customer is similarly likely to suffer less competitive pricing if they're not prepared to do a bit of research.

The MSE savings account piece even spells it out:

As there's a bonus on this account, the rate will drop in a year, so prepare to move your cash then if it's no longer competitive.

djpailo

dogfonos wrote: »

Just noticed something interesting in the way P.O. Savings manage "interest" rates on their variable rate Online Savings accounts. Perhaps other savings institutions also do this?

Since February 2017 to date, P.O. Savings have had no less than eleven Online Saver accounts. Each new account succeeds the previous account which then becomes closed to new savers. Nothing particularly unusual about that, but I notice that nearly all these accounts (from Online Saver Issue 25 through to the current Online Saver Issue 34) offer the same basic rate of interest which is 0.25%AER. However, each issue offered a different bonus rate - valid for one year - which makes up the vast majority of the "interest" paid out.

Over this period of time (Spring 2017 to date) the Bank of England (BoE) base rate has increased from 0.25% to 0.50% in Nov. 2017 to the current 0.75% (as of Aug. 2018).

Before Online Saver Issue 25, I note that the interest rate was competitive (i.e. above BoE base rate) and no bonuses were paid. Seems there was a change of strategy from Issue 25 onwards.

So why do P.O. Savings use this method to pay a reasonably competitive rate of interest? Is it to reduce interest payouts to many (most?) of their savers, because when the account has been open one year, and the bonus elapsed, the underlying interest rate will be particularly low. There will likely be many savers currently receiving only 0.25% interest. I'm not aware this method of paying bonus and interest has been employed to such extremes before but would be interested to hear otherwise.

Begs the question: when is a variable interest rate account not a variable interest rate account?

Not sure I understand the last sentence. Variable rate simply means it may change, it doesn't mean to say it will change. A fixed rate means it cannot change under the rules provided in the T&C's.

As to your question, I think there is indeed an element of hoping people "forget" to transfer money out. One could argue its actually a very good strategy for the Post Office. The only thing they must do is clearly state the terms of the product and ensure it is not misleading. It is up to the customers to decide whether its worth it or not. I don't believe the accounts are misleading in any way.