Many advertised savings rates are not the rate the account pays for most of its life. A bonus applies for an introductory period, after which the balance falls to a much lower underlying rate.
What the bonus is buying
An introductory rate is a marketing expense. The bank is paying above its normal cost of funds for a defined window in order to acquire a depositor.
Acquisition through rate is expensive but fast. It reaches savers who compare tables, which is the segment most likely to move money for a better return.
The expense is bounded because the enhanced rate ends on a known date, so the bank can calculate in advance what each new pound or dollar of deposits costs.
Why the underlying rate is set low
The headline figure that appears in comparison tables is the bonus rate, so competitive pressure concentrates entirely on that number.
The underlying rate is not compared and therefore does not need to be competitive. It is often close to the minimum the institution pays on any product.
The combination lets a bank appear at the top of a table while paying an average rate over the full period that is considerably lower than the headline.
How the economics depend on inertia
The offer is only profitable if a meaningful share of balances stay after the bonus ends. If everyone left on the expiry date, the acquisition cost would buy nothing.
In practice most balances remain, because moving requires an action at a moment when nothing prompts it. The rate drop is quiet and the account continues to function normally.
Balances that stay for years at the underlying rate fund the bonuses paid to the next cohort of new customers, which makes the model self-sustaining.
Why notification does not solve it
Rules in many markets require notice before a rate falls. Notification is necessary but weak, because it arrives as one message among many.
The information also arrives at a moment chosen by the bank rather than a moment when the saver is thinking about savings, which reduces the chance of action.
Disclosure improves fairness without changing the underlying behaviour, which is why regulators have periodically revisited the treatment of long-standing balances.
What the effective rate reveals
The figure that matters is the average rate earned across the whole period money is held, not the rate on the day the account was opened.
An account paying a high bonus for a year and very little for the following two years may return less than a plainer product with a stable rate.
Calculating that blended figure before opening an account is the only way to compare a bonus product against a consistent one on the same basis.