Share this post

For the last few months, banks have been continually cutting the interest rates they offer on their ISA accounts, with customers seeing the best new deals available drop from offering 3.5% to around 2.5%. It was a trend that looked set to continue, much to the disappointment of savers everywhere.

However, NatWest now appear to be moving against the tide, offering a new eSavings ISA that will give people a 2.85% return on their money. It can be opened with as little as £1, can have other ISAs transferred into it, though it can only be accessed online. With internet banking on the rise, the online limitation is not much of a drawback for most people, and so the uptake of this is likely to be significant.

There is still a big problem with the account though, which is that the majority of that attractive 2.85% interest rate is made up by a bonus rate that will expire after twelve months. This has become more and more of an issue with ISA accounts over the last year. On average, 65% of the advertised savings rate is made up by a bonus rate, compared to last year when only 49% was. It’s a big issue for savers, meaning they have to keep juggling their money around if they want to be sure they are getting the best rate of return on their investment.

The banks’ motivation for this is obvious: if savers aren’t getting such a good rate of return, the bank can keep the money it makes to itself. This means that bonus rates which only last for a set amount of time are a very attractive proposition, especially if they know people are likely to forget to change accounts once the bonus period ends.

Another issue is that if you try to access the money during the bonus period, you lose all the bonus interest. This effectively makes the account a fixed period account, even though it isn’t advertised as such.

It’s clear that research is always necessary when you’re looking into finances, whether that’s to get the best deal on a loan or find the best rate of interest on a savings account.