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Savers must look behind headline interest rates

It was yesterday warned that, with the huge increase in new building society and bank accounts boasting supposedly high interest rates, savers should exercise caution before choosing which account to invest in. This comes after the announcement that so far this year, over sixty-five variable accounts have been launched by leading banks and building societies.

However, whilst these accounts may appear to give only benefits to the investor, leading market analysts have warned of several 'ruses' which mean that all is not as it seems. For example, some banks cut interest rates if you withdraw any money from the account, whereas some advertise their interest rates without stating that the saver will then pay tax to the bank out of this interest. However, the latest trick is for the bank to pay in interest to another account - preventing customers from earning interest on their interest, and therefore halving returns on their savings. This practice has been seen in accounts from the AA, Birmingham Midshires and Bradford&Bingley.

These practices are all authorised by the Banking Code, meaning that if savers sign up to one of these deals without realising the potential cost, there is no way they can appeal to the bank. Investors must therefore look behind great headline interest rates to find the catch in each one.

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