Why do promotional rates for savings accounts seem too good to be true?
Most people fall into the trap of being enticed by the honeymoon rate. Be warned that this rate only lasts for a certain period of time. Once it ends, you will end up with the base or standard variable rate which could put you in a worse-off position.
Savers that open an account with a promotional rate must be aware of when the honeymoon period will end. Most of these accounts let you withdraw your money and your funds are usually available at-call.
standard variable rate
Savings Account Offer
Introductory rate of 3.00% p.a. for 4 months, reverting to a rate of 2.10% p.a. The bonus rate offer is for new AMP Saver customers only, and applies to the first $250,000 deposited.
- Maximum Rate: 3.00% p.a.
- Standard Variable Rate: 2.10% p.a.
- Introductory period: 4 months
- Monthly fees: $0.00
See the differences between honeymoon and real rates below
A three to four month honeymoon rate is only a good deal if the base interest rate over the life of the savings account is going to achieve your savings goals, in the time period that suits you.
When choosing a savings account, you could base your decision on the base interest rate and not the honeymoon rate. Once the honeymoon period is over, your savings account will revert back to the initial interest rate.
Although there is nothing wrong with the bank advertising a promotional rate, be warned that with introductory bonus savings accounts it will come to an end and most people are seduced by the rate or forget that it reverts to a much lower rate.
So if a rate seems to high to be true, it is probably a honeymoon rate and it’s worth checking what the standard rate of the account is.
If you consistently want a honeymoon rate and are willing to meet the conditions, we recommend that you read about bonus saver savings accounts. Alternatively, if you want a fixed interest rate we suggest you read about term deposits.
What is a base rate?
Base or standard variable interest rates is the rate that the account has when the honeymoon period ends. For example, most savings accounts have a variable interest rate and the honeymoon rate adds to that if you’re a new customer (that is, you’ve never held the account before).
When you are shopping for a savings account that has a honeymoon rate, be aware that this rate only lasts for a limited time. Make sure that the base rate will continue to achieve your savings goals and you’re not only opening the account because of the headline rate.
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