When a bonus isn't a bonus

Most of the top savings accounts offer bonuses nowadays. Should you go for them? Rachel Robson finds out.

These days there's absolutely nothing unusual about having a bonus on your savings account. In fact, it's becoming increasingly challenging to find an easy access savings account that doesn't include a bonus.

The problem with bonus rates, however, is that they temporarily (usually for a year) bump up the overall interest rate on the account - making it look very attractive.

But once that bonus expires, you could be left with an account paying an utterly pathetic rate of interest - and your bank will probably be hoping that you either won't notice this, or that you'll be too lazy to bother switching. And that way, they get away with paying a rubbish rate of interest on your savings for the next year or even longer.

That said, I personally don't think bonuses are necessarily a bad thing as I think they've played a very useful role for savers during the current economic climate. Bonuses have at least provided a guarantee that the rate of interest you receive won't fall below a certain level. And this can provide a great sense of security in a turbulent market.

So if you're looking for a new easy access savings account, should you choose one with a bonus, or one without? Let's see how they compare.

The top 7 savings accounts with bonuses

The chart below highlights the top seven easy access savings accounts that include bonuses:

As you can see, the top paying savings account with a bonus is the Citibank Flexible Saver Issue 6 which offers a juicy interest rate of 3.3%. There are no withdrawal restrictions on this account and you only need £1 to open it. But of course, this account includes a fairly hefty bonus of 2.25% for one year - and once that year is up, the rate will drop to a paltry 1% - meaning you'll need to find a new home for your savings.

On the plus side, this bonus rate is fixed - so you know it's guaranteed for the full year. In fact, all but one of the savings accounts in the above table include fixed bonuses.

The Alliance & Leicester Online Saver Issue 5 is the only account to offer a variable rate bonus. And, in my opinion, this automatically removes this account from the competition. After all, there's no guarantee whatsoever that the interest rate on this account will stay the same from month to month - let alone year to year. So why bother?

The top 7 savings accounts without bonuses

So what happens if you'd prefer to steer clear of bonuses on your savings? How do the top savings accounts compare?

This time the top savings account is the Lloyds TSB Incentive Saver which pays an impressive 3.04%. Okay, so this isn't as high as the 3.3% offered by Citibank, but given it doesn't include a bonus, it's still an attractive rate.

In fact, although overall the above accounts pay a slightly lower rate of interest than those accounts with a bonus, the difference isn't as big as you might expect. So is there really an incentive to plump for a savings account with a bonus?

Well, yes. And that's because six out of the seven accounts in the chart above include some kind of withdrawal restriction. For example, the Lloyds TSB Incentive Saver will pay no interest whatsoever during any month you make a withdrawal. And this makes me really mad. Surely the whole point of choosing an easy access account is so that you can get your hands on your cash whenever you want to without being penalised?

What's more, all of these accounts have some kind of rate guarantee for a set period - so who knows what will happen after that. For example, the interest rate on both of the West Bromwich accounts is guaranteed not to fall below the base rate until 30 April next year. Well, whoppee! Given that the base rate is unlikely to move before then, this means you're guaranteed the rate won't fall below 0.5% - what an incentive!

Meanwhile, the Lloyds TSB account can only be open for one year. Once that year is up, your money will be moved to an Easy Saver account which is currently paying a pathetic 1.6%, which - you've guessed it - includes a bonus of 1.5%!

That means that once the first year is up, you're going to need to shop around for a better savings account. And this means that if the only reason you're against opening an account with a bonus is because you'll have to move your money after a year, you're actually not any better off with a non-bonus account!

There is another way

There is, however, one easy access savings account I haven't yet mentioned. And that's the ING Direct Savings Account. As you probably know by now, I'm a big fan of this account. That's because the ING Direct Account offers a guaranteed rate of 3.2% - so in effect, this side-steps a bonus rate all together because you know you'll get the full 3.2% for the first year.

Of course, this does mean you'll need to move your savings again after the year is up because the rate will drop to just 0.5% - but as I've already proved, this seems to be the case for most savings accounts at the moment.

So overall, if I was choosing a savings account, I'd definitely plump for the ING Direct Savings account. However, it is worth noting that savers with ING Direct are protected under the Dutch Deposit Guarantee Scheme, not the UK's Financial Services Compensation Scheme. On the plus side, this means you get up to £91,745 guaranteed by the Dutch Government, while the UK Government only guarantees up to £50,000.

If you don't want to go for ING, I think choosing an account with a bonus rate is still the better option - at least that way you won't have to face any withdrawal restrictions and you're likely to get a better interest rate. Just remember to find a new home for your savings once the bonus expires. Good luck!

*Whatever your balance, you are guaranteed a 1.65% variable bonus.

More: My top five instant access savings accounts | How to earn 5%+ on your savings