Is Your Loyalty Being Rewarded?

When it comes to choosing financial products, the golden rule is -- you guessed it -- "shop around", because it's impossible for a single provider to offer the best products and services in every category.

Despite this, up to eight out of ten of us don't shop around when we need an everyday financial product, such as a credit card, personal loan or savings account. We simply take a stroll to our local bank branch and buy what they have to offer.

To me, this is crazy -- after all, would you accept the first tradesman's quote for some building work, or would you get several quotes in order to compare charges? Thus, generally speaking, it pays to be unfaithful and fickle when choosing financial products, because the result is lower costs or better value for money!

However, a few firms are prepared to reward their existing customers' loyalty with hard cash, in the form of discounts and so on. In particular, many building societies (which are owned by, and run for the benefit of, their members) are keen to reward customers who stay put with higher returns or lower charges.

I asked independent financial researcher Moneyfacts to provide me with details of the loyalty, bonus and reward schemes on offer to existing customers in two key categories: savings accounts and personal loans. Here's what I discovered:

Savings accounts

In total, 23 firms (mainly building societies) offered improved savings rates to their existing customers, either in the form of higher rates of interest on key accounts, or by offering exclusive member-only savings accounts. Here's a flavour of what's available:

Note that some existing-customer incentives are pretty feeble: an extra 0.1% a year before tax for existing customers with a Cheltenham & Gloucester Bonus Tracker account is hardly much reward for loyalty!

Personal loans

These six lenders offer lower loan rates to existing customers (figures based on a loan of £5,000):

Of the above discounts, the least attractive comes from Liverpool Victoria, which provides a measly 0.1% rate cut to existing customers on loans of any size. The biggest discount comes from Barclays, which almost halves its loan rate for existing customers. Then again, only a lunatic would go to Barclays to get a loan at 14.9% APR, when Best Buy loans can be found at under 6% APR!

So, are these financial firms rewarding their customer loyalty? Technically, the answer is yes, but astute borrowers and savers should not fall for these enticements. All of the above loan rates for existing customers are inferior to our Best Buys, plus all of the above savings accounts can be beaten by the ICICI HiSAVE account, which pays 5.15% AER on £1+, with no strings attached.

In summary, my advice is to stick to shopping around -- save time by doing it online!

Many thanks to Andrew Hagger of Moneyfacts for supplying this data.

More: Compare credit cards, personal loans and savings accounts via the Fool!