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Bonus rate accounts used to entice savers

Banks and building societies are boosting the bonuses they offer people opening new savings accounts in an effort to recruit extra customers.

Research by data analysts Defaqto has revealed that a number of savings providers are promising a 2 per cent introductory bonus rate.

The average bonus rate has climbed from 0.61 per cent to 0.91 per cent in the past year.

However, bonus rates tend only have a short lifespan and, said Defaqto, are intended to move accounts into Best Buy tables.

Savers were advised to think about opening the accounts, closing them as the bonus rates lapse and searching out a better, more competitive deal elsewhere.

David Black, a senior consultant at Defaqto, said: “Introductory bonus rates are a marketing tool but in the current economic climate people should take advantage of them.”

Savings accounts have been hit hard by the dramatic recent falls in the Bank of England’s official rate. The base rate has shrunk from 5 per cent in the autumn to its current 1.5 per cent, and most banks and building societies have followed suit in cutting the returns available on their accounts.

Savers were warned, though, to take detailed note of the terms and conditions of any new accounts. Banks and building societies are not required to send out notification that an introductory bonus is about to end, provided that the terms of the account have been communicated clearly.

As a result many savers allow their money to sit in accounts after the attractive introductory rate period has come to a close, whatever the subsequent interest rate that the account delivers.

Defaqto’s study showed that 80 instant access accounts offered introductory bonuses compared with 53 two years ago, and that bonus rates remain in place for an average of 8.7 months.

In addition, 28 notice accounts, 22 cash ISAs, three regular monthly savings accounts and one current account also gave bonuses.

Mr Black added: “As always, it is important for savers to study the terms of the account as some accounts may limit the number of withdrawals permitted and with some accounts the introductory bonus may also be conditional.”