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If you’ve noticed your savings aren’t growing as quickly as you’d expect, your bank may be part of the problem. Savers could be missing out on almost £300 a year, if they keep their savings with a high street bank.
Big high street names often offer some of the lowest rates on the market — and many loyal customers don’t realise how much they’re missing out on. Here’s what you need to know
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Keeping your savings with a high street bank – quite possibly the one you hold your current account with – can feel convenient. But it could be leaving you worse off, particularly if you have a decent amount in savings.
Analysis from Moneyfacts found that the average rate on a flexible easy access account from a big high street bank is just 1.19%. That’s less than half the average rate of 2.42% for all easy-access accounts. But savers can still do much better, with some of the top-paying accounts currently offering 4% or more for instant access.
A saver with a £10,000 balance with the average ‘big bank’ savings account would earn £119 interest a year. But if they switched into a top-paying account, they could earn up to £300 a year more than that. An easy-access account paying 4% (AER) would mean they would earn £400 - a difference of £281 a year.
Caitlyn Eastell, personal finance analyst at Moneyfacts, says: “Loyalty to big banks can leave savers hundreds of pounds worse off, an amount that many may struggle to spare. With savings rates expected to drop further from the peaks seen over the past few years, staying in a low-paying account may amplify the cost, making it harder for savers to reach their financial goals.”
Despite a vast difference between the best and worst accounts, many people seem reluctant to switch to a better deal. According to research from Flagstone, almost three in 10 savers (29%) have stuck with the same low-paying savings account for more than 11 years.
Alice Haine, personal finance analyst at Bestinvest, says older savers in particular could really be missing out. “Hunting around for a better deal is particularly important for retirees as they typically hold higher levels of cash than younger savers.
“While someone of working age might only need an emergency fund to cover three to six months’ worth of essential expenses, retirees are advised to hold a higher amount that ranges from one to three years’ worth. That means a larger share of their wealth risks sitting in accounts offering dismal returns.”
Not everyone wants to keep switching accounts, especially if they don’t like banking online or using banking apps.
Clare Jones, head of strategic partnerships at Flagstone, says: “It’s completely understandable to value familiarity and security. But sticking with the same bank for years doesn’t guarantee better returns, and in many cases, it can mean earning far less than you should.”
The first step is to think about the type of savings account you need. Haine says: “A standard easy-access savings account works well for short-term goals, such as saving up for a weekend away. It can also be an ideal home for an emergency fund, as money can be withdrawn quickly if an unexpected expense crops up.”
But, if you’ve got enough set aside for emergencies, you might want to consider fixed-rate or notice accounts, which may pay a higher rate, in return for restricted access.
Whether you’re looking for easy access or a fixed rate, you’ll have a choice between ordinary savings accounts and ISAs. While cash ISAs will shelter your savings from tax, you might find a savings account that pays a better rate.
If you won’t breach the personal savings allowance and pay tax on savings interest, it’s fine to simply choose the account that pays the highest rate. But if you will pay tax, the right choice for you will depend on both the rate of tax you pay and the amount you have saved.
Once you’ve got a better idea of what you need, it’s time to start shopping around for the best rate. Haine says: “Comparison websites can be helpful as they provide an overview of the whole market and can filter search results by the type of account you want.”
But it’s important to be vigilant, says Eastell: “Challenger banks often lead the market with headline rates that include limited-time bonuses, sometimes exceeding 2%.”
If you’re happy to switch accounts as soon as the bonus runs out, there’s no harm taking advantage of the inflated rate. But if that’s unlikely, you’ll be better off going for the highest rate without a bonus.
You should also check for any other restrictions, adds Haine. “Many providers apply conditions such as minimum deposits, withdrawal limits, or rules that must be met to achieve the full advertised rate.”
Once you’ve opened a better savings account, Haine says it’s important not to switch off and forget it altogether.
“Rates can change, either because an advertised deal has expired or because interest rates have adjusted. Although savings providers must notify you of this in advance, it’s your responsibility to stay on top of your savings and switch if you are unhappy.”
She adds that some savers like to use ‘savings platforms’ to help them stay on top of ever-changing savings rates. “The platforms track the best deals and switch money instantly without the hassle of fresh applications and new login details. While a savings platform might offer convenience, some take a small cut of partner banks’ rates. This means a saver might get a better rate if they went to the provider directly.”
If you prefer to manage your savings yourself, it’s worth reviewing your savings once a year, or more frequently, if there have been frequent changes to interest rates.
If your account isn’t keeping up, you can switch to a better deal again.
If you’re using cash ISAs, remember you shouldn’t close your account and then open a new one. Instead you should ask your new provider to arrange an ISA transfer for you. That way, you can make sure your money doesn’t lose its tax-free status.
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