Savers are missing out on hundreds of pounds worth of savings returns every year because banks are failing to pass on interest rate increases.
According to analysis of savings rates over the past three years by consumer association Which? some banks pay just 0.1% interest on some of their savings accounts, despite the fact the Bank of England base rate is currently at 4.5%.
For example, Barclays ‘Everyday Saver’ account paid a miserly average of just 0.1% between January 2020 and March 2023, whilst Lloyds Bank’s ‘Easy Saver’ and Hodge Bank’s ‘No Notice’ account also paid an average of just 0.1%.
The good news is that there’s no need to settle for paltry returns, as you can vote with your feet and move to a higher interest paying account.
The Which? analysis found that, looking at rates today, savers could earn £312 more in interest over a year on a £10,000 deposit by putting their money into Chip’s Instant Access account paying 3.82% annual interest, compared to Barclays’ Everyday Saver. Based on a £1,000 deposit, you’d earn £31.20 more in interest (£38.20 compared to £7).
Other competitive easy access accounts include Hanley Economic’s Branch Saver account, which pays 4.50% on a minimum investment of £1,000, and the West Brom’s Double Access account which pays 3.85% on a minimum investment of £1. Contrary to its name, the Hanley Economic account can be opened online as well as in branches,
If you’re trying to start the savings habit for the first time, a regular savings account can be a good place to begin, usually requiring you to pay in a set amount each month.
The best rates typically go to those who also have a current account with the same bank or building society. For example, this week Skipton Building Society launched a regular savings account for its mortgage or savings customers which pays 7.5%. To qualify, you must have had a mortgage or savings account with Skipton on or before May 31, 2023. There’s no minimum monthly deposit, but you can pay in up to a maximum of £250 a year.
Saffron Building Society similarly launched a Loyalty Saver account for members, which pays a whopping 9% annual interest before tax. However, the maximum amount you can pay in each month is £50, and you must have been a member of the building society for a year or more to be eligible for the account.
More like this
Savers undeterred by living costs and inflation
Despite the fact living costs are currently soaring, latest data from the Bank of England shows that we are still managing prioritising saving, with an households depositing £5.2 billion with banks, building societies and NS&I in April – far more than the £0.8 billion deposited in March.
Myron Jobson, Personal Finance Campaigner at Interactive Investor, said: “Higher interest rates prompted Britons to stash more cash into their savings accounts. Our enthusiasm for saving has been renewed following a reprieve in savings rates from rock bottom levels after numerous consecutive increases to the base rate.
“However, it is also important to bear in mind that savings rates remain in the doldrums in real terms because of high inflation, meaning you'll be able to buy less with your money. In fact, the real value of cash savings has been eroded at an alarming rate in recent history.
“But there is also a budding appreciation of the importance of building an ample cash buffer amid rising prices - three months’ salary is a good rule of thumb.”
Alice Haine, personal finance analyst at Bestinvest, said that inflation shouldn’t act as a barrier to savers. “With savings rates edging up dramatically and inflation expected to ease further this year, savers that lock in a good deal now will eventually reach a point where their money actually starts to hold in value in real terms,” she said.
“Moving money sitting idle in an account with an ultra-low interest rate to one offering better returns is key, particularly as high street lenders have come under attack in recent days for not passing on interest rate rises to their customers.”