Surfing savers shop around for far better cash returns

Sainsbury's Bank has stepped up the battle for savers' money with a new internet account, the Internet Saver, paying 5 per cent. Accounts can be opened from Monday, with a minimum balance of just £1.

Sainsbury's Bank has stepped up the battle for savers' money with a new internet account, the Internet Saver, paying 5 per cent. Accounts can be opened from Monday, with a minimum balance of just £1.

The account, available from www.sainsburysbank.co.uk, is not the best-paying, no-notice internet account on the market. But the bank points out that, of the 18 easy-access internet accounts paying 5 per cent or more, two require regular monthly savings and one limits the number of withdrawals that can be made. Several of the higher payers require a minimum opening balance of as much as £1,000, and several have special introductory rates that drop back after an initial promotional period.

The new net venture adds a third tier to Sainsbury's savings accounts. These until now have comprised its Direct Saver, which is principally operated by post and telephone - although there is a facility to manage it online - and the Instant Access Saver, which the bank considers to be the equivalent of a branch account. The latter is the keystone of the SaveBack venture, and allows account holders to credit their accounts at the supermarket checkout - a reversal of the usual cashback facility.

The new account carries a guarantee that it will beat the average rate of a basket of competitors' products (sourced from monthly figures provided by the financial data company Moneyfacts) until the end of December 2010. Deposits can be made by direct debit from an existing bank account, by post, or by leaving an envelope in a special deposit box in Sainsbury's supermarkets.

Steven Baillie, savings manager at Sainsbury's Bank, says: "By extending our range of savings products we can offer more choice for savers, and hopefully encourage more people back into the saving habit. The Internet Saver could be just right for people who like the functionality of the internet, combined with a good rate. It also offers the convenience of receiving deposit money electronically, by post, or in your Sainsbury's supermarket."

Roddy Kohn, of the IFA Kohn Cougar, says: "Since the new Sainsbury's account has been launched with the same rate as the Direct Saver account, one has to wonder if this will signal a drop in the rate for the Direct Access account. Now that there is an account that is totally internet-based, it would seem to make sense to pay a higher rate for an account that requires less administration."

Sainsbury's has not disclosed what the new rate on its older accounts will be. The guarantee that the bank had in place ran out this week, and the bank's board is due to meet on Monday to decide the new rate.

Mr Kohn says: "Internet account rates have started to push upwards since the Dutch bank ING came into the market a couple of years ago and made the other banks take notice. But if you are looking for the net account that is paying the best rate, why not just go straight for Alliance & Leicester, which is paying 5.35 per cent? If you have £1,000 saved, that is only going to mean just over an extra three pounds in interest a year, but if you have £100,000 invested, it starts to make quite a difference. And if you are looking for an account with longevity and consistency, Egg has always paid a competitive rate."

At the same time, the Direct Access account may continue to appeal to some existing Sainsbury's customers, even if its rate comes down. One of the concerns about internet banking is security, particularly phishing - messages from fraudsters, purporting to come from a bank, which attempt to dupe customers into revealing their security details. Last November, the Association for Payment Clearing Services (Apacs) issued a warning that banks could soon start denying consumers compensation if they believed they were sufficiently aware of fraud risks. This could make unsophisticated net-users wary of internet accounts, where the potential risks are even greater from hackers breaking into apparently secure areas.

Mr Kohn says: "You have to remember that people with large amounts of cash on deposit tend to be older. They may be increasingly internet-savvy, but they are often not confident with the net and they would rather sacrifice a few pounds' interest and feel they are not at risk from fraud. Many will be looking for guaranteed protection for their savings."

The new Sainsbury's internet account does not offer a cash card, albut its lower-paying Instant Access account does. Of the internet-based accounts that do offer cards, Yorkshire Building Society, Coventry Building Society and Abbey have the best rates. Yorkshire Building Society has offered an e-savings account for more than two years, and has recently cut the minimum operating balance from £1,000 to £250. It is currently paying 5.2 per cent, but the account carries a guarantee that it will pay at least Bank of England base rate.

David Holmes, Yorkshire's spokesman, says: "The account has been hugely successful, and we have dropped the operating balance to make it available to more people. We could not afford to offer 5.2 per cent for just £1, so it would mean bringing down the rate if we had a lower minimum. We are very aware of the need to be fair to all our customers, so we have the rate as high as we can get it. But that means that we can't have all the bells and whistles. However, eventually all our accounts will be web-enabled." The Yorkshire's e-Isa pays the same as the e-Saver, but needs a minimum balance of just £10.

John Murray, 73, a retired video director, lives with his wife, Marcia, in Holmfirth, West Yorkshire, and has been a Yorkshire Building Society customer for 45 years. "I opened my first account in the 1960s at the local branch, and then I had a postal account. But almost as soon as they brought out this e-Saver account, I switched," he says.

He uses the internet extensively for his leisure activities, and says the internet account is simple. He has used the cash card only once, "to see if it works", and uses the account only for savings.

But Mr Murray is not worried about internet security. "I wish Yorkshire would put all of its accounts on the net. They ask for three pieces of identification when you log into your account. If anything, it is too secure as it is." But he does get sent many phishing e-mails. "I am very aware of phishing. The Yorkshire has issued alerts about them, and I can tell you, I am certainly on my guard."