Kaupthing Savers Face New Dilemma

Ex-Kaupthing savers have been given two new choices regarding their savings. What are they? And more importantly, which is better?

If you're one of Kaupthing Edge's 160,000 rescued savers, you're probably aware of a new deal that's been put on the table.

This week, savers with the failed Icelandic bank became fully integrated into their new home at Dutch rival ING. The bank took over £2.5 billion of Kaupthing's deposits last October, in a move which protected savers from the same fate of depositors with fellow Icelandic brand Icesave.

Now, the Dutch bank has offered Kaupthing savers two choices concerning their cash:

This week, customers with Kaupthing were automatically moved to ING's standard rate of 2%, which also honours Kaupthing's old guarantee that their rate will be at least 0.3% above the base rate until 2012.

However, until March 9^th, savers have been given the option to choose an alternative savings plan. This offers a larger rate of 4% - which includes a bonus of 2.02%, payable for six months.

After this, they will earn ING's standard rate (currently 2% AER), but will not have the benefit of the guarantee.

Goodwill hunting

Personally, I think ING has been pretty good to its Kaupthing customers so far, and has honoured rates on Kaupthing's fixed rate bonds, some of which were paying over 7%.

Unfortunately, the picture for interest rates is not as rosy as it was a year ago, and as the base rate continues its freefall, variable rate savings have dropped significantly.

So which option is better?

In my opinion, the answer to this question is simple: opt for the bonus.

As ING's optional bonus is so large, the resultant rate of 4% makes it a market leading rate in today's terms - even if it only lasts six months.

For an idea of what each option means for your savings, if ING's standard rate fell to 1% in six months time, with the bonus option savings of £5,000 would have grown to £5,127 after one year. With the standard, guaranteed rate you'd only have £5,083.

Obviously if ING's current rate doesn't move at all, the returns you'll get will be even higher. 

Eye on the ball

Despite my confidence in the bonus option, it's important to keep your eye on the ball when it comes to ING, as over the years the bank has become notorious for dropping its rates.

Savers pulled £5.4bn out of ING in 2007 for exactly this reason, and though in recent times the bank has again become the market leader for new savers, it's important not to become lazy when it comes to your hard-earned cash.

The main thing to remember is that ING is an easy access account, which means you are under no obligation to take up either of these offers as can withdraw your money at any time.

If you are looking for an alternative home for your cash, the current joint market leader is the Egg Savings Account, which pays 3.5% including a 2% variable bonus.

My advice would be to opt for ING's bonus option, and in six months time see where your savings stand compared to the rest of the market. If your rate is no longer competitive, don't be afraid to take your loyalties elsewhere.

Act now!

In any case, if you want to opt for the bonus, remember you won't receive it automatically, so ensure you act before March 9^th.

It's also worth mentioning that the 22,000 customers of Heritable Bank, which was also taken over by ING from Landsbanki in October are not affected by this latest news, as they haven't yet been integrated into the group's systems.

Whatever your decision, savings rates across the board continue to change every day. The main thing to remember is to keep track of the rate you're getting, and be prepared to switch when required.

More: Bank Safety: Four Months On / Five Ways You Can Still Earn 6% On Your Savings