Does loyalty to your bank really pay?

Monday, 23 February 2015
I have friends who seethe about their relationships, about who said what (or didn’t, for that matter) and how they would like to move on, but are too scared. Now, before you start throwing Relate contact numbers at me, let me explain: they are talking about their relationships with their banks.   

Unfortunately, the adage “we are more likely to get divorced than change bank account” has rung true for far too long. 

Yes, those splendid fellows at the Payments Council did introduce an industry-wide current account switching service way back in September 2013. But even though this system makes moving from one provider to another hassle-free, we haven’t really taken the service to heart, at least not yet.

However, the threat that we can “take our overdraft elsewhere”, as the joke goes, may at last be encouraging banks to try to hold on to our custom with some exclusive savings accounts, sometimes called loyalty products.

What are loyalty savings accounts?  

Loyalty products are marketed as exclusive deals that are only available to existing account holders, normally current account customers. But are they the better option, or are they just smoke and mirrors?

This week, Moneyfacts has analysed those products that are only available to consumers who hold existing accounts with the provider. While these deals may pay a higher rate than the other accounts they offer, in all cases, better deals can be found by shopping around. The sad news is that this confirms loyalty really doesn’t pay.

Worse still, the research revealed that as savings rates have fallen, loyalty products have experienced a much sharper fall than other accounts.   

Easy Access Today Feb-14 Variable Cash ISAs Today Feb-14
Best Rate (linked products only) 1.00% 1.40% Best Rate (linked products only) 1.59% 1.75%
Best Rate excluding linked products 1.50% 1.60% Best Rate excluding linked products 2.00% 1.80%
Difference between linked and non-linked best acc -0.50% -0.20% Difference between linked and non-linked best acc -0.41% -0.05%
Two-Year Fixed Rates Today Feb-14 Five-Year Fixed Rates Today Feb-14
Best Rate (linked products only) 1.90% 2.40% Best Rate (linked products only) 3.00% 2.50%
Best Rate excluding linked products 2.30% 2.31% Best Rate excluding linked products 3.53% 3.36%
Difference between linked and non-linked best acc -0.40% 0.09% Difference between linked and non-linked best acc -0.53% -0.86%

So what is going on with loyalty savings accounts?

It is obvious that a bank or building society is going to try to keep hold of its customer base even if that means offering them exclusive deals at better rates.   

In principle, this has to be good news for the consumer, but the truth is that it can only ever be good news if the consumer ends up with a deal that can’t be beaten.   

Sadly, after examining all of the loyalty accounts across today’s market, not one of them beats the best rate equivalent that can be found by simply shopping around.

Therefore, in all cases, taking a loyalty account from a national or online provider will lose you money.

And with account names such as Exclusive, Prestige, Bonus, Loyalty and Premier, it is hardly surprising we are drawn in.

So are providers simply playing on the apathy of customers? If so, then we as consumers must take a portion of the blame for as long as we continue to walk without thought into these accounts.

I realise that because the interest paid on savings is generally low, convenience plays a big part in choice. So if you choose a loyalty account where your return is greater than the other accounts your provider offers, even though you could get even more elsewhere, then that is acceptable because it is an educated choice - but it should never be the starting point.  

Having assessed the market, today’s loyalty accounts are not offering any reward, so don’t be afraid to invest your loyalty elsewhere. Visit our savings best buy table for the best deals currently on offer.