marylsommers: Savers: beware the end-of-term switch

When fixed-term savings accounts mature your money is rolled over into another account ? usually paying a paltry return

I recently received a letter from Halifax telling me that the Children's Regular Saver account I had opened for my daughter in November 2010 was reaching its anniversary, and would soon automatically become a Young Saver account paying 2% gross.

Three paragraphs later the same letter told me that Halifax has a range of new savings accounts, including the Kids Regular Saver paying a fixed rate of 6%. It would have been nice if the funds from my earlier account could have been automatically rolled in to the better-paid option rather than the low-paying variable account ? if I want that to happen I need to apply for a new account.

A Halifax spokeswoman says: "The Children's Regular Saver runs for a period of one year and matures at the end of the year ? the funds in the account therefore need to be transferred into an alternative account at maturity (there is a maximum limit on the amount which can be invested), hence rolling it in the Halifax alternative children's account, the Young Saver.

"You don't have to leave the funds there and can move them to an alternative account should you choose to. If [savers] would like to have another Kids regular saver paying the 6% they can absolutely apply for a new one to again run for the period of a year."

That's fair enough, but Halifax did not even include an application form for me to take to the branch.

Switching money from a high fixed rate to a lower variable one when the fixed period has ended is standard practice though, according to Andrew Hagger of Moneynet.co.uk.

"Savings providers do advise you what they are doing, of course, but many people only give these letters a cursory glance so will end up in poorly-paid accounts," he says. "Don't assume you will be given a best-buy account by a provider."

This is worth bearing in mind if you are planning to open any of the current best-buy regular savings accounts.

The best of those deals is First Direct's 12-month regular savings account offering a rate of 8% ? but it is only available to current account customers. HSBC has a similar offer for some of its current account customers.

Savers who do not bank with either of those could choose West Brom Building Society's 12-month savings account fixed at 4.1% or Saffron Building Society's 12-month regular savings product paying 4%.

However, as with my Halifax account, regular savers into these accounts will have a shock when the 12 months are up. First Direct savers will see their cash transferred automatically to either an Everyday e-Saver paying 0.25% or a Savings Account paying 0.05% ? although First Direct says a new Regular Saver account can be opened.

West Brom will automatically reinvest funds into a variable rate easy access account ? either the Branch Premium Share Account paying 0.05%, or the Direct Easy Access Account paying 0.05%.

At Saffron, after 12 months customer accounts will automatically switch to a variable rate Loyalty Cash account which currently pays 1.8%.

However, Hagger says the old trick of offering higher rates to new customers while punishing existing clients with poor interest rates is slowly dying. "We are seeing less and less of that. In fact, some providers are doing the opposite. Nationwide, for example, offers loyalty rates to existing customers, so providers are seeing the benefit of keeping customers happy."

Bonds and easy access

That generosity does not appear to stretch to customers who apply for one of NatWest's current fixed-rate bonds. Its two-year and one-year bonds have soared to the top of the best-buy tables with respective rates of 3.8% and 3.4%, but it has been criticised for only paying the headline rate from 29 November ? savers will receive just 2% on their cash until then.

Hagger says: "It is bizarre, and something I've only seen on some index-linked or corporate bonds where the provider might have done a bit of hedging in the run-up to the product launching. For a consumer-facing savings product this is unheard of, and is an unnecessary and unwelcome complication for savers."

According to figures from the British Bankers' Association, unsecured credit contracted by 1.2% over the past year and personal deposits rose by 3.8%. In the first eight months of 2011 deposits and savings have increased by �13.5bn compared with �21.2m in the same period of 2010.

Some might think these figures surprising given the paucity of decent rates available on the high street, but Hagger says there are still attractive options for savers.

Among one-year fixed-rate bonds he highlights Cheshire Building Society's 3.55% product (minimum deposit of �100) and Aldermore's 3.46% bond (minimum �1,000). Over three years, the Post Office pays 4.21% (minimum �500) on its bond, while Vanquis Bank has a bond paying 4.15% (minimum �1,000). The five-year fixed-rate bond table is headed by BM Savings and Saga, both paying 4.65% (and with a minimum �1), while AA Savings pays 4.6% (minimum �1).

Derbyshire Building Society has the best-buy easy access account. Its Netsaver 2 pays 3.16% on a minimum deposit of �1,000, although that includes an introductory bonus of 2.16%, paid until to January 2013, while Santander's eSaver 4 pays 3.1% on deposits from a minimum of �1, including an introductory bonus of 2.6% for the first 12 months.

It seems that unless you opt for a long-term fixed rate you will probably need to shop around again this time next year.

Mark King