The bank joins an elite club, including Halifax and Northern Rock, that will pay more than 6% on your savings. But experts warn that the accounts carry a number of catches.
Abbey will pay 6.5% on its Fixed Rate Monthly Saver account for one year. Savers must make 11 consecutive monthly payments of between £20 and £500 by standing order, so the maximum annual investment is £6,000. You cannot make withdrawals or additional deposits.
If you miss a monthly payment, or make a withdrawal, your money will be transferred into Abbey’s Monthly Saver.You will also be charged a penalty of one month’s interest.
Your balance is transferred into Monthly Saver at the end of the 12-month term. Monthly Saver is a variable-rate account that is currently paying an “enhanced” rate of 5% — as long as you pay in at least £20 a month by standing order and do not make any withdrawals. If not, the rate drops to a paltry 1.25% in the month that you miss the payment or take money out. The “enhanced” rate is guaranteed to at least match the base rate — but only until September 2005.
Sue Hannums of Chase de Vere, an adviser, said: “Savers who can afford to lock their money away for 12 months are being offered a great rate. After that, take care. Your money will be rolled into Monthly Saver, which also pays a competitive rate only if you do not make withdrawals. So Abbey is in effect asking you to tie your money up for longer than a year if you want a decent rate.
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“Also, the rate guarantee on Monthly Saver ends precisely when Fixed Rate account holders will be joining the scheme. We would recommend the 6.5% deal, but be especially vigilant when the year is up.”
If you close the Fixed Rate Monthly Saver account before 12 months, you will be charged 30 days’ interest. You can close the Monthly Saver account at any time without penalty.
Abbey has gone head to head with its rival Halifax, whose Regular Saver account pays 6% if you credit the scheme with between £25 and £250 every month. The maximum balance is therefore £3,000, compared with £6,000 at Abbey.
At the end of the term, your balance is switched into a Halifax account that you must nominate at the outset: Web Saver, which pays 4.9%; Premium Savings Direct at up to 4.65%; Instant Saver at up to 3.05%; or Saver Reward at up to 2.95%.
Northern Rock also offers a fixed rate of 6% on its four-year bond and Isa. There is a minimum balance of £500.
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Experts say that rates of more than 6% are unlikely to be around for long. A number of banks, including Heritable and MBNA, pulled rates of more than 6% last week.
However, if you have a lump sum, you may be better off putting it all into an account at less than 6%, rather than dripping it monthly into Halifax or Abbey’s schemes.
Say you put a £500 lump sum into the best one-year bond from Northern Rock at 5.5%. After 12 months, it would be worth £527.50. But if you made monthly payments of £41.66 into Abbey’s Fixed Monthly Saver account, you would have £514.64 after a year.
Higher-rate taxpayers should also consider guaranteed income bonds (Gibs), run by life insurers — if they are prepared to tie up their cash for at least four years. Countrywide, for example, is offering a rate of 4.6% on £20,000 in its four-year bond. Returns are paid net of basic-rate tax. The rate is equivalent to a gross return of 5.75% for a basic-rate taxpayer and 6.13% for a higher-rate payer.
Gibs pay commission to financial advisers. If your adviser will waive its cut, it could boost your rate. Chartwell, for example, offers 4.71% net of basic-rate tax on the Countrywide bond, equivalent to a gross rate of 5.89% for a basic-rate payer and 6.28% at the top rate.
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Ben Willis of Chartwell said: “Higher-rate taxpayers should always check Gib rates, but non-taxpayers should steer clear as they cannot reclaim the basic-rate tax.”