Sadly I suppose it’s only a matter of time before Stannah has to intervene in transporting Brucie from the top to the bottom of that treacherous looking staircase in Strictly Come Dancing. But it’s really fantastic that Bruce Forsyth has never truly stopped working – what a great role model. I’m not suggesting you work until you are an octogenarian, but why not take the example of Brucie and apply it to your savings? So, because you’re my favourites let’s investigate the merits and pitfalls of a savings account with an introductory (Brucie) bonus.
Now unless you’ve been incarcerated in Len Goodman’s care home for the last couple of years, you’ll know that interest rates paid on savings accounts have witnessed a dramatic decline recently. One way to maximise the amount of interest you get on your savings is to open an account that pays you a bonus on top of your interest rate. In fact, some of the best savings accounts out there at the moment pay a bonus, but beware: you need to play a good game to continue to get the best rate…
So, bonuses; how do they work?
Bonuses are great, but the reason they are great is because they aren’t permanent. Most bonuses on savings accounts only last for 12 months, at which point your bonus is whipped away faster than Craig Revel Horwood can say “Cha-cha-cha”!
Bonuses on savings accounts take two forms:
- Conditional Bonus. A bonus that is dependent on you behaving in a certain way; for example, not making more than two withdrawals in a year. If you don’t adhere to the conditions of the bonus it will be reduced or even lost completely.
- Unconditional Bonus. A bonus that will be paid regardless of how you operate your account.
Both types of bonus are paid as part of your interest rate. For instance, you might receive a rate of 2.50%, but 1.50% of that rate is a bonus, so when the bonus period comes to an end your account will only pay 1.00% (assuming the Bank of England Base Rate doesn’t increase). It’s the dance equivalent of going from the Argentine Tango to having to dance to “The Birdie Song” (although admittedly not nearly as humiliating).
“Didn’t they do well?” – how to beat the bonus trap.
The calculated risk that all banks and building societies make when they offer a 꽁머니 5000 bonus is that most people won’t move when it ends – that’s when they start to make the serious money off your sequin fund.
But you don’t need to be Brucie or even an Alesha to be a great mover (well, not when it comes to your savings anyway!). Simply be alert to when the ends and be ready to move again. Most bonuses last for a short while, typically a year – so set an alert on your phone or computer, or write it down in your diary or calendar to review your account.
“I am not doddery, doddery I am – not!”
Now, I should say that savings accounts with introductory bonuses are not always the best accounts available for everyone. If you are prepared to lock your money away for a set period, you might find that a Fixed Rate Bond might be more appropriate. Similarly, an ISA is always worth a look as well – there are even ISAs with introductory bonuses! Remember that for any non-ISA accounts you will have to pay tax on interest you receive so when comparing ISAs to non-ISAs always use the net rate of interest.