Introductory bonus rates explained: what happens after 12 months?

What an introductory bonus rate is

An introductory bonus rate, often called a boost, is extra interest added to a savings account’s standard rate for a fixed period, usually 12 months. The headline rate is the standard rate and the bonus added together. When the period ends, the bonus stops and the standard rate carries on.

That makes every boosted headline really two numbers and a date. Chip’s Instant Access account is a typical example: Chip describes its headline of 3.51% AER (variable tracker) as “Made up of a 3.00% standard variable rate, plus a 0.51% new customer boost for 12 months”. Until you know the standard rate and the boost length, you only know what the account pays for part of the time you might keep it.

Why savings apps lead with boosts

Boosts exist because the headline rate is what gets an account noticed. Best-buy tables and comparison sites sort by headline AER, so a temporary bonus can lift an account to the top without the provider paying that rate to every customer forever.

It also relies on a simple pattern in how people save: once money is in an account, most of it stays there. A provider can afford to pay a generous rate for a year if many customers keep their savings in place after the boost ends, at a lower standard rate. That is not dishonest, as long as the standard rate and the length are clear. It just means the second year is where you can lose out by not paying attention.

None of this makes boosts a bad deal. A boost is genuinely extra interest. The trick is to treat it as a one-year bonus, judge the account on its standard rate if you plan to stay, and be ready to move when the boost ends.

How to find the standard rate

The standard rate is almost always published, just less prominently. Look in these places:

1. Next to the headline. Look for “then”, “after” or “for 12 months”. Chip’s Smart Cash ISA page says: “New customers can earn 4.68% AER (variable tracker) for 12 months. Then the standard rate of 3.50% AER”.
2. The breakdown under the rate. Many pages split the headline into a standard part and a bonus part, as Chip’s Instant Access page does.
3. The summary box. UK savings accounts come with a summary box that sets out the rate, any bonus and its length.
4. The terms. If the bonus has conditions, such as a withdrawal limit or minimum balance, they will be in the terms.

Also check whether the AER and gross figures are mixed. Chip’s Easy Access page, for example, describes its boost as “Comprised of an underlying standard AER of 3.50% … plus a 0.31% AER (0.30% gross) new customer boost applied for 12 months”. Our guide to what AER means explains why the two differ.

Chip’s boosts, worked out

Here are Chip’s three boosted accounts, with the boost worked out from Chip’s own headline and standard rates, and what £10,000 would earn in the first year compared with the second. This assumes the balance stays the same and the rates do not change, which, for variable trackers, they may well do.

The pattern is the same for each: the second year pays less, by the size of the boost. On the Smart Cash ISA, the drop is about £118 a year on £10,000. Averaged over two years, the ISA works out at roughly 4.09% a year, which is a fairer way to compare it with an account that has no boost.

Chip’s standard rates are trackers set below Bank Rate, so they will rise and fall with it. The current figures for every account, updated after each rate change, are on our Chip interest rates page. To model your own balance through the point where a boost ends, use the savings interest calculator.

Look at two years, not one

If you expect to keep money somewhere for longer than the boost, the fairest comparison is the total over the time you will actually hold it. Here is the two-year picture for Chip’s boosted accounts on £10,000, again assuming rates stay where they are:

Two things stand out. The boost is worth having, but it is a one-off: over two years it adds the same amount as in year one, no more. And the standard rate does most of the work over time, which is why an account with a smaller boost but a better standard rate can come out ahead if you stay put. These figures ignore compounding and rate changes, so treat them as a guide.

Boosts with conditions

Not all boosts are simply added for a year. Some come with rules, and breaking them can end the boost early or cut the rate. Common conditions include:

• A withdrawal limit. The bonus may be lost after a set number of withdrawals in a year.
• A minimum balance. Dropping below it can remove the bonus.
• A time limit to open. Some boosts are only for accounts opened within a set time of joining the provider.
• A paid plan. Some apps pay their best rates only to subscribers, which is a cost rather than a boost.

Chip’s published boosts on these three accounts are described as new-customer boosts for 12 months. The Easy Access Saver has its own withdrawal rule, separate from the boost: 3 penalty-free withdrawals in each 12 months; from the 4th the rate drops by 2.10% AER. Read the conditions for any boost before you rely on it.

Boosts at other providers

Boosts are everywhere, and the standard rate underneath is what separates them. A few current examples from providers we track:

• Plum Cash ISA: 4.73% AER variable for 12 months, then 2.54%. Plum says the bonus has conditions, and its FAQ says it may be lost after your fourth withdrawal.
• Moneybox Cash ISA: 4.72% AER variable for 12 months, then 3.45%. It has a minimum balance and moves to a lower rate after several withdrawals in a year.
• Chase Saver: 2.25% AER variable; 4.5% for new customers with the boost. Boost terms: 2.25% AER boost for 12 months; open within your first 31 days. Chase says the offer may be withdrawn at any time.

Two headlines that look almost identical can lead to very different second years. Compare the standard rates as carefully as the headlines. Our best Cash ISA apps and Chip vs Chase Saver pages put them side by side.

What to do when the boost ends

When a boost ends, you have three choices: stay, move within the same provider, or move elsewhere. Doing nothing is the same as choosing to stay, so make it a decision rather than an accident.

1. Set a reminder on the day you open the account. Put a calendar note about two weeks before the boost ends, so you have time to compare. Providers do not always remind you clearly.
2. Compare the standard rate with the market. If it is close to the best ordinary rates, staying is reasonable. Moving for a small difference is rarely worth the effort.
3. If the gap is worthwhile, move. Easy access savings can usually be withdrawn and paid in elsewhere the same day. For a Cash ISA, never withdraw: ask the new provider to transfer it, so the money keeps its tax-free status. Our Cash ISA allowance guide explains why transfers do not use allowance.
4. Check what you might leave behind. Chip’s ISA page says transferring out or closing forfeits any unpaid interest, so time an ISA transfer for just after interest is paid.

If you are moving, the Chip alternatives page covers when another provider suits you better, including fixed rates that do not drop after a year.

New customers only

Most boosts are for new customers only, and the definition of “new” is set by each provider. Some mean new to that account, others new to the provider entirely, and some count anyone who has not held an account within a set period. Chip describes its boosts as new-customer boosts; for its separate referral bonus, it defines a new customer as someone who has never held a Chip account before.

That has two practical effects. First, you usually cannot reset a boost by closing and reopening an account. Second, if you already hold an account with a provider, its headline rate may not be the rate you would get, so check the existing-customer rate before moving money in.

Boosts sometimes come alongside sign-up or referral bonuses, which are separate one-off payments with their own conditions. We list the ones we can verify each month on our savings app offers page.