People are being warned of poor interest rates from high street banks (Image: Getty)
Anyone with £10,000 savings in their account has been given a chilling warning – they will be losing loads of money if they only use some accounts from high street providers. Savers need to broaden their search beyond high street banks such as Natwest, Barclays, Nationwide and Santander or lose out on £300, new figures suggest.
Analysis by independent comparison site Moneyfacts has found that the biggest banks offer an average rate of 1.19% on their flexible easy access accounts, while the typical rate for challenger banks is 4.12%. A saver with £10,000 in an easy access account earning a typical big bank rate could earn just £119 in a year.
If they moved that into a challenger bank offering a typical rate, they would earn £412 – meaning they’re losing out on £293. Caityln Eastell, personal finance analyst at Moneyfacts, warned that savings rates were expected to fall, and staying in a low-paying account could amplify that drop.
“Switching to a lesser-known challenger bank could help offset this, as they often offer more attractive rates. By operating digitally with lower overhead costs, challenger banks can pass on cost savings to customers, giving them the opportunity to improve their returns,” she said.
“Savers don’t have to take on additional risk by switching to a smaller or digital provider because many challenger banks are also covered by the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000.
“However, savers should remain alert. Challenger banks often lead the market with headline rates that include limited-time bonuses, sometimes exceeding 2%.”
Matthew Jenkin from the consumer group Which? has explained that people often fall into ‘traps’ that can cost them a significant amount of money.
Mr Jenkin warned that those who deposit £10,000, for instance, in a high street instant access account could lose out on hundreds of pounds. He stated: “One of the biggest mistakes you can make when looking for the best home for your savings is limiting your search to the high street. The familiarity of a household name may feel safe, but breaking out of your comfort zone and choosing a smaller lesser-known provider could leave you better off.”
He said smaller online operators frequently offer much more appealing rates and highlighted data from Moneyfacts showing the gap in rates is widest on instant-access products. Furthermore, he pointed out that the difference in interest could exceed £300 over a 12-month period for a sum of £10,000.
Big banks’ easy access selection
|
Barclays Bank |
Everyday Saver |
1.05% |
|
HSBC |
Flexible Saver |
1.14% |
|
Lloyds Bank |
Easy Saver |
0.75% |
|
NatWest |
Flexible Saver |
1% |
|
Santander |
Easy Access Saver |
2%* |
Challenger banks’ easy access selection
|
Charter Savings Bank |
Easy Access – Issue 70 |
4.06% |
None |
|
Chase |
Chase Saver With Boosted Rate |
4.41% |
2.23% bonus for 12 months |
|
Kent Reliance |
Easy Access Savings Account – Issue 13 |
4.07% |
None |
|
Shawbrook Bank |
Bonus Easy Access Savings Account – Issue 5 |
4.05% |
Includes 1.98% bonus for 12 months |
|
Spring |
Easy Saver |
4.03% |
None |
Caityln Eastell, personal finance analyst at Moneyfacts, warned that savings rates were expected to fall, and staying in a low-paying account could amplify that drop.
“Switching to a lesser-known challenger bank could help offset this, as they often offer more attractive rates.
“By operating digitally with lower overhead costs, challenger banks can pass on cost savings to customers, giving them the opportunity to improve their returns,” she said.
“Savers don’t have to take on additional risk by switching to a smaller or digital provider because many challenger banks are also covered by the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000.
“However, savers should remain alert. Challenger banks often lead the market with headline rates that include limited-time bonuses, sometimes exceeding 2%.”
Mr Jenkin said smaller online operators frequently offer much more appealing rates and highlighted data from Moneyfacts showing the gap in rates is widest on instant-access products. Furthermore, he pointed out that the difference in interest could exceed £300 over a 12-month period for a sum of £10,000.
Mr Jenkin explained: “For example, if you invested £10,000 in a high street account paying 1.15% AER – the average high street rate – you could expect to earn £115 in interest over a year. But if that balance was invested in the top account for larger deposits you’d earn 4.48% AER and your annual interest income would increase to £448. That’s a difference of more than £300. If you’re nervous about saving with a bank or platform you’ve never heard of, there are some checks you can perform to ensure your money is protected.”
He emphasised the importance of checking whether the bank or platform is covered by the Financial Services Compensation Scheme (FSCS), which safeguards up to £120,000 of a saver’s pot should it go bust. He added that while challenger banks must adhere to the same rules and regulations as other banks, not all of them are FSCS-protected.
Mr Jenkin also warned against letting savings sit idle. He stated: “Rates can chop and change so fast, it can hard to keep up. But neglecting your savings can cost you. That’s especially true when it comes to deposits in fixed accounts. Unless you tell your bank or building society what to do with the money when the bond matures, your provider may automatically move your cash into a lower-paying or notice account, or return it to your current account where it earns little or no interest.”
He pointed out that some headline rates also include temporary bonuses that expire after a few months: “Chase’s Saver, for instance, pays 4.5% AER including a 12-month 2% bonus – but drops to 2.5% afterwards. Make a note of when your term or bonus rate is due to end then switch as soon as possible.”