This overlooked saving account feature quietly limits how much interest you can earn, say money advisers

Thomas Wilkins • December 10, 2025 16:25

On a damp Tuesday evening, Sarah did what personal finance guides always tell you to do: she finally moved her rainy-day fund into a “top-paying” savings account.

The rate looked glorious on the comparison site: 5.20% AER, easy access, big friendly green tick. She shifted £25,000 over, closed the laptop and went to make tea feeling quietly virtuous. That was the retirement pot, the emergency buffer, the new boiler fund all earning “proper” interest at last.

A month later, her statement landed. The interest was… fine. Not awful. But nowhere near what she’d sketched on the back of an envelope. She double-checked the rate, checked her calculator, checked whether she’d misread the AER thing.

Then she spotted the line she’d scrolled past on signup night:

“5.20% AER on balances up to £5,000. 1.00% AER above this.”

The account hadn’t lied. It had simply used a feature most of us overlook: tiered interest bands and caps that quietly limit how much of your money earns the headline rate.

Money advisers see this pattern all the time. The surprise is rarely the maths. It’s how invisible that limit felt until the statement arrived.

The line in the small print that does the heavy lifting

Banks and building societies rarely say, “We’ll only pay the good rate on a slice of your cash.” They say things like:

“5.20% AER on balances up to £5,000”
“4.80% fixed on the first £10,000”
“Bonus rate applies to a portion of your balance”

On mobile screens, that qualifying line is often in smaller text, or you need to tap “More details” to see it. Your brain logs the big number and files the rest under “fine print to check later”.

Behind that small phrase usually sit one of three designs:

Capped interest
The eye-catching rate only applies up to a set balance. Anything above that may earn a much lower rate – or sometimes nothing at all.
Tiered interest (banded)
Different slices of your balance earn different rates. For example:
- 5% on the first £5,000
- 3% on the next £10,000
- 1% on anything over £15,000
Tiered interest (whole balance)
Your entire balance gets the rate linked to the tier you fall into. For example:
- 3% if you have £1–£9,999
- 4% if you have £10,000–£49,999
- 4.5% if you have £50,000+

The difference between “banded” and “whole balance” sounds technical. On your statement, it adds up to real money.

Advisers say the problem isn’t that these structures exist. It’s that most people assume the headline rate applies to every pound, and nobody at the bank sits you down and says, “By the way, it doesn’t.”

How tiered interest quietly clips your earnings

Imagine you, like Sarah, have £25,000 in cash.

You see Account A advertised as:

“5.20% AER variable on balances up to £5,000. 1.00% above this.”

You mentally do 5.2% of £25,000 (~£1,300 a year) and feel quite pleased. But here’s what actually happens in a year (ignoring compounding for simplicity):

First £5,000 at 5.20% = £260
Remaining £20,000 at 1.00% = £200
Total interest: £460

Your effective rate on the full £25,000 is 1.84%, not 5.20%.

Now compare that with a straightforward account paying 4.25% AER on the whole balance:

Full £25,000 at 4.25% = £1,062.50

Same saver, same money, very different outcome. The “boring” lower headline rate nearly doubles the interest.

This is what money advisers mean when they say, “Don’t chase the biggest number on the screen. Chase the biggest interest on your balance.”

The caps and bands don’t show up in the best-buy tables as a separate column. They sit inside the product name or a footnote. Yet they decide far more of your outcome than the decimal place on the headline rate.

Other features that shrink your pot without shouting

Tiered and capped interest are the main culprits, but they rarely travel alone. A few other account features also chip away at how much you actually earn.

Introductory bonuses on a timer

Many “easy access” savers add a temporary bonus to the core rate:

“Base rate 2.50% + 2.00% bonus for 12 months = 4.50% AER”

Two quiet issues:

After the bonus ends, your rate may drop to something anaemic.
The AER assumes you keep the account for a full year on that structure.

If you sign up mid-year, move money in stages, or forget to switch when the bonus ends, your real return is lower than you expect. Advisers often find old “bonus” accounts trundling along at 0.9% while their owners still think they’re “on about 4%”.

Regular savers with tiny caps

Regular savers splash giant percentages – 6%, 7%, even 8% AER – but:

You can usually only pay in a set amount each month (often £200–£300).
The interest is calculated on an average balance that builds gradually.

Over a year, that 7% on a slowly growing pot can be worth less than 4% on a large lump sum in a simple account. These accounts are great for disciplined monthly saving. They’re not a parking spot for big cash piles.

Conditions tied to current accounts

Some high-paying savers are “linked” to current accounts that require:

A minimum monthly pay-in
A certain number of direct debits
Card spending targets

If you don’t meet those conditions, the savings rate may drop. Or you lose the bonus entirely. Another quiet limiter that doesn’t appear in the big number on the poster.

How to audit your savings in 10 minutes

Advisers often start with a very unglamorous exercise: reading the product summary.

Here’s a simple checklist you can run through with each of your savings accounts:

Find the key facts document
Search your bank’s website or app for “summary box” or “key product information”. This is where the real rules live.
Highlight these phrases
Look specifically for:
- “On balances up to…”
- “On the first…”
- “Tiered interest applies as follows…”
- “Includes a bonus rate until…”
- “Introductory rate for new customers only”
Work out your effective rate
Use your actual balance and the bands shown to calculate how many pounds get each rate. Add the interest up and divide by your total balance. That’s your personal rate, not the advertised one.
Check what happens next
- When does any bonus end?
- Does the account revert to a default rate?
- Are there balance thresholds where the whole rate changes?
Decide whether to split your money
You might earn more by:
- Keeping only the capped amount (say £5,000) in the high headline account
- Moving the rest to a different account with a solid whole-of-balance rate

A quick example:

Feature	What to check	Why it matters
Balance cap	“Up to £x at y%”	Tells you how much can sit at the top rate.
Interest bands	Different rates by slice	Shows whether extra cash drags down your average.
Bonus period	End date and revert rate	Signals when you should review or switch.

Ten minutes with a notebook – or a quick spreadsheet – often reveals that the “nearly there” account is quietly leaking hundreds of pounds a year in lost interest.

Rethinking “best buy” tables

Comparison sites and newspaper lists tend to sort by the highest headline AER. It’s a useful starting point, but not the finish line.

A more powerful way to use them is:

Filter by your balance size first
Some sites let you enter “I have £x to save”. If not, focus on accounts explicitly good for large balances, not just teaser caps.
Ignore rates with unrealistic conditions
If an account needs two direct debits you don’t have, or a current account switch you don’t want, mentally dock it a few points.
Use more than one account
Many advisers suggest:
- One or two high-rate, capped accounts funded up to their sweet spot
- A separate, no-fuss easy-access saver for the rest of your cash
- Optional regular saver for monthly contributions, if you like the structure

Think of it less as “finding the one best account” and more as stacking a few simple accounts so each pound sits in the best home it realistically can.

A one-month plan to quietly boost your interest

If the details feel overwhelming, shrink the task down:

Week 1 – List and look
Write down every savings account you have, the current balance and the advertised rate. Add the provider’s name so you can find the summary box easily.

Week 2 – Spot the caps
For each account, underline any “up to” or “tiered” language. Note the maximum you can hold at the best rate.

Week 3 – Move to the sweet spots
- Top up capped accounts to their limit if the rate is genuinely market-leading.
- Drain any money above the cap into a simple, decent easy-access account.

Week 4 – Set a review date
If any account relies on a bonus, put a reminder in your phone for one month before it ends. That’s your cue to repeat the review – not your bank’s.

Most households only need to do this properly once a year. After that, it’s maintenance, not a major project.

FAQ:

Is a high capped rate ever worth it if I have a big balance?
Yes, as long as you treat it as a “top slice” account. Park only up to the capped amount there (for example £5,000 at 5%), and keep the rest in a solid, uncapped account. The mistake is leaving your entire £30,000 in an account where most of it earns 1%.

How do I tell if an account is banded or whole-of-balance tiered?
The summary box should show this. If it lists separate rates “on the first £x”, “on the next £y” and so on, those are bands on slices. If it says “balances between £x and £y receive z% on the whole balance”, that’s whole-of-balance tiering. When in doubt, ask the provider in writing.

Are regular savers a bad idea because of the caps?
Not at all. They are excellent for building new savings from your income. Just don’t expect them to transform the return on a large lump sum – that’s not what they’re designed for. Pair them with a decent easy-access or fixed-rate account for existing savings.

Should I ever stick with a low rate for convenience?
For tiny balances, maybe. Moving £300 for an extra £2–£3 a year might not be worth the admin. But on four- or five-figure sums, small percentage gaps add up fast. Many people are surprised to learn that a 2% difference on £20,000 is £400 a year – for the sake of an online form.

Does tax change which account I should pick?
Tax doesn’t change how caps and tiers work, but it does change your net return. Check your Personal Savings Allowance and consider ISAs if your interest is likely to exceed it. The same principle applies inside ISAs: watch for caps, tiers and bonuses, not just the top-line rate.