Beware of bonus rates on your savings!

There are lots of new market-leading savings accounts around with big bonuses, which sounds great - but Jane Baker thinks it pays to beware.

There are no guarantees, but if you think the base rate will go up soon, now is a good time to take your chances with a variable rate savings account.

And the good news is, the rates on these accounts are going up. If you take out one of the easy access best buys, you can now bag yourself a rate above 3%. OK, so that may not sound particularly earth-shattering, but compared to earlier this year, when the average savings rate was 1.48%, it's big jump.

Most of today's top accounts come with what seems like an attractive feature: a bonus. This is the bank's way of topping up the rate for a limited period. The table below shows some of the best:

Best buy easy access accounts with bonuses

* Coventry BS will donate a sum equal to 0.25% of the average balance held in the account for each 12 month period to the Royal British Legion's Poppy Appeal.

With some accounts, the bonus makes up a very large part of the overall rate. Take the Alliance & Leicester Online Saver 5, for example. This account offers a market-leading rate of 3.15%, but the rate includes a massive bonus of 2.65% on balances under £25,000.*

In other words, the return above the base rate (currently 0.50%) is entirely made up of the bonus.

What's worse, this bonus is variable. In other words, it could be altered at any time. Therefore, you have absolutely no guarantees when it comes to this account, and no way of knowing what the rate will be next month, never mind next year.

Fixed bonuses

For this reason, you may prefer the Birmingham Midshires Telephone Extra account, which also pays 3.15% and offers a bonus of 2.65% for 12 months.

The difference is, the bonus on this account is fixed. So, unlike the Alliance & Leicester Online Saver 5, your rate is guaranteed to never drop below 2.65%.

Other accounts, such as the Leeds Building Society Online Access Account and the Egg Savings Account offer smaller fixed bonuses. With the Leeds account, for example, you'll earn a rate of 3.05% which includes a 1% fixed bonus until 31 July 2010. But please be aware that this account is 'temporarily unavailable', according to the Leeds Building Society website. So you may be better off with the Egg account offers a rate of 2.80% with a fixed bonus of 1.55% for a year.

You might argue that a bonus which is fixed at a relatively low level isn't particularly attractive, but it does mean your savings rate won't dwindle away to nothing until this time next year at the earliest.

In my opinion, unless the bonus is fixed, and therefore guarantees a minimum return at least, I see very little point in having one from a saver's point of view.

Beware of the bonus

But the bonus rate - whether fixed or variable - serves two important purposes for the banks:

Firstly, a bonus sounds very appealing. It's a clever marketing tactic which lures savers in, even if it's not actually boosting the return in any meaningful way.

And secondly, bonuses are only ever in place for a limited period, usually for a year. After this time, they disappear instantly. If the bonus made up a big part of the overall return, you could find the rate your left with is truly pitiful.

In other words, the bonus gives the banks the opportunity to offer a competitive rate now which automatically turns into a paltry rate later on. Your bank will probably be hoping you won't even notice, so they can get away with paying rubbish returns on your savings next year and beyond.

So, be warned. While there's absolutely nothing wrong with choosing a best buy account with a bonus, you'll almost certainly have to move your savings to a more competitive place in 2010.

But, the same is also true of any variable rate account whether there's a bonus included or not. This rule always applies: keep an eye on the rate you're getting on your savings. If it starts to fall behind the market-leaders, move it pronto.

Top savings accounts without bonuses

Personally, I think bonuses are a sneaky way of kidding savers into thinking they're getting a better rate than they really are. That's why I would be tempted to choose an account with a top rate, but no bonus instead.

I particularly like the new ING Direct Savings Account. It's an easy access account which offers a competitive rate of 3% fixed for 12 months. This is the only account I've come across which offers a guaranteed return, and allows you to draw on your cash whenever you like, penalty-free. But the drawback is it's only available to new customers.

With the ING account, you'll have the certainty of knowing exactly how hard your savings are working for you. But, once again, you must, must, must move it once the year is up. After this time, your account will revert to ING's variable savings rate which is currently just 0.50%.

ING is a good choice if you don't expect savings rates to improve dramatically from where they are today over the next year. What's more, a fixed rate and instant access are a great combination. I think that's worth sacrificing 0.15%!

Compare savings accounts at lovemoney.com

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

More: Savings rates are finally rising | Avoid these scandalous savings accounts!