Why Smart Savers Generally Avoid 'Affinity' Type Financial Deals
This article explains why savvy finance consumers, those who get the best deals for their money, always tend to focus on price or interest rates rather than the so-called bonuses that come attached to a financial product.
Affinity type financial products are those that have some sort of brand associated with them, for example credit cards offered by Liverpool football club or, as discussed here, bank accounts designed to appeal to Rugby fans.
There is no point in naming the bank offering the following deals because it's unfair to single out any single institution when many others offer similar affinity deals.
Three Savings Accounts Using Rugby As The Hook
- The first is a regular savings accounts which requires a minimum £10 a month payment and offers an annual 4.8% interest rate
- To put this in perspective the present official Bank of England base rate is 5.75%. And to compound this poor rate no more than two withdrawals can be made over a year
- The second savings account requires a minimum of £250 deposit and pays a ridiculously low 3.95% gross interest a year
- However, the bank is generous enough to offer a cash card with his account, but only if requested!
- The final account is open to younger savers and pays 5.2% gross interest a year
- Minimum account opening balance is one pound and it also includes an England rugby piggybank
A saver opening any one of the above accounts receives two free tickets to a future sevens rugby tournament at Twickenham. Plus all accounts will be debited 1% of the average annual balance which will be paid to the Rugby football Union (RFU) to help pay for grassroots development.
Say No To Gimmick Accounts - How A Savvy Finance Buyer Would Operate
Simple, forget about the marketing and go with a savings account that pays a high interest rate alongside being as flexible as possible, ie allowing instant access to your money with no financial penalties. A ‘financial penalty’ on a savings account normally means that if you withdraw money one or two months interest is lost.
But what happens if you want to donate 1% of your savings to the RFU every year? Well, by opening one of the accounts above let’s look at some simple maths -
- Assume you open the account that pays 3.95% a year
- when the 1% payable to the RFU is deducted in the account now pays 2.95% a year
- inflation is running anywhere from 4% to 7%, meaning in purchasing power you are losing money
- By opening one of these accounts both the bank and the RFU is making money from you - but unfortunately you are losing in effect everyone is using you
Right now the top paying flexible (instant access) savings account is paying 6.05% gross (see this InvestorProfit.com article for more details) and so a switched on saver will look to open this account or a similar one.
Then if you still want to donate 1% to the RFU you'll still earn a respectable 5.2% gross interest on your money rather than a pathetic 2.95%.
Summary
These days it pays to be rather mercenary with our money. There is so much competition from the banks and building societies that we the consumers really are in the driving seat because we choose who to do business with and not the other way round.
So don't get too tied up in the marketing messages or so called free gifts - instead focus on the interest rate and the flexibility.
Ultimately it's not hard to be a savvy personal finance consumer but you do need to do a touch of research to see what's available on the market at that time.
Good luck in getting the best deal for your savings.
See Also
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