Savings account danger

Beware the penalty charges that come with top savings rates, says Sainsbury’s

Tuesday, 28 October 2008

Writes Hazel Cottrell
hazel.cottrell@consumerchoices.co.uk

Over 13 million people have savings in instant access accounts that impose penalties if withdrawals are made, new research from Sainsbury’s Finance said yesterday.

The research from Sainsbury’s Finance (www.sainsburysbank.co.uk) found that 13.26 million people claim to have over £165 billion in savings accounts that penalise withdrawals.

Sainsbury’s analysis of the top 50 instant/easy access savings accounts reveals that 24% of banks restrict the number of withdrawals that can be made from such an account, and 8% apply a penalty for making a withdrawal.

Helen Cook, Head of Savings at Sainsbury’s Finance said: “There are a number of accounts that offer a very attractive rate of return…if you don’t need to access your savings, these accounts can be very attractive. But if you have to take money out the rate of interest you receive can fall substantially.”

The research found that for some of the top instant/easy access savings accounts, making a withdrawal would result in you not receiving any interest for your entire balance that month.

This means if you had £10,000 in such an account paying 6.5% AER interest but made one withdrawal a month for four months, the AER you would receive would fall to 4.33%; a loss of £217 in gross interest over the year.

Chris Eagle, commercial manager at CreditChoices.co.uk said: “When choosing the right savings account, it’s crucial that you look at the limits or penalties that are imposed on withdrawals in addition to the headline rate.

“If you think you are likely to need access to your savings it may be worth choosing an account with a slightly lower interest rate if it offers penalty-free withdrawals.

“Indeed, Sainsbury’s own Internet Saver offers 5.0% AER on balances from £1, with no restrictions or penalties on withdrawals.”

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