Sainsbury’s warns of falling interest rates after bonus periods

Financial service provider Sainsbury’s Bank has issued a warning to savers that some accounts which offer short-term bonuses can “over-inflate returns and mislead savers”.

Sainsbury’s claims that it offers “consistently attractive” rates, including 4.75 per cent on £1 balances, and that all of its savings accounts have a promise to pay above the market average interest rate until 2010.

According to the bank, the average return on no notice accounts with introductory bonuses for balances of £1,000 is 4.23 per cent.

The average bonus on these accounts, however, is 0.63 per cent, meaning that the rate will drop to an average of 3.6 per cent.

Owing to this “sharp fall” Sainsbury’s advises that customers should opt for a savings account which offers consistent and regular rates of interest on their investments.

“There is nothing wrong with short-term bonuses as long as savers are aware of them and have taken into account what their long-term interest rate will be,” said Peter Wood, director of savings at Sainsbury’s Bank.

“However, it’s easy to be drawn by an attractive rate so we’d urge savers to consider their returns beyond the point when a bonus expires.”

According to the company’s research, 11.05 per cent of no notice accounts and a further 16.98 per cent impose penalties for withdrawals by reducing rates.