Cahoot pulls account

INTERNET bank Cahoot has closed its high interest earning account, just over two months after it was launched.

The instant access savings account was launched in a blaze of publicity at the end of June, with a headline rate of 5.50%, guaranteed not to fall for 12 months. It later rose to 5.65%, after the Bank of England base rate increased.

The account, which was open to existing savers as well as new customers, was opened alongside the ordinary savings account. The original paid interest of 4.98% gross, but interest was paid monthly. According to financial information provider Moneyfacts, leaving the interest in the account would boost the overall annual rate to 5.10%.

However, interest on the high interest account was paid annually, rather than monthly, making it cheaper for Cahoot than paying interest monthly.

Cahoot spokesman Matthew Young said it was more cost-efficient to pay interest anually rather than monthly, which was why they were able to offer 'such competitive rates'. Yet he denied there had been any problems with the account, pointing out that it was always intended to be available only for a limited period of time.

Young added: 'It was always our intention to close subscription to the account in autumn as we have a limited amount of funds to run it. The huge demand we have had means we had to close it sooner than expected.'

The ordinary saver account is still open to new business. Alternatively, there are no shortage of accounts to choose from, at more competitive rates.

Northern Rock has an online tracker account which pays interest of 5.41%. It includes a guarantee not to fall more than 0.5% below the base rate. Birmingham Midshires' Internet easy access account pays 5.40%, while Leeds & Holbeck online saver account is not far behind at 5.30%, although there is a higher minimum balance of £100.