How much interest do you earn from your savings? If current rates are anything to go by, chances are that it isn't a lot – and research from Charter Savings Bank and YouGov has revealed just how meagre many peoples' earnings can be.
The survey found that 21% of respondents with savings earn 0.5% interest or less on their primary account, which means that a lot of people could be earning less than the Bank of England base rate. As a result of this, together with historically low interest rates and poor offerings from the high street, the average UK savings pot of £8,500 would earn an average of just £43 a year in interest – and that's before tax has been deducted.
Essentially, this means that a large number of savers are only earning slightly more interest than those who don't keep their savings in a dedicated account – for many, the only benefit of a savings account over a shoe box is the security, with the potential earnings being barely worth it. In fact, a growing number of people are choosing less secure options, with the Bank of England estimating that as much as £3bn is stashed away in UK homes.
There's also a clear lack of interest, and engagement, from savers themselves, with 32% admitting that they don't know the current rate of interest paid on their main savings account, while 17% admit to never having checked. However, this is a sure-fire way to limit yourself when it comes to your savings potential, because if you don't know what interest you're currently earning, how do you know if you could get a better deal?
You may think it's almost impossible to secure a decent return on your savings, but that's why it's time to think outside the box – and why you should start looking away from high street savings providers. There's been a clear rise in the number of challenger banks joining the savings scene in recent years and they've picked up from where the big names left off, and in many cases offer far better rates of interest than you could find elsewhere.
"High street banks are offering little more to the UK than a secure mattress for their savings," said Paul Whitlock of Charter Savings Bank, "[so] it's no surprise UK savers have themselves lost interest in their savings. People are simply not aware of how much harder their money could be working for them and so have become apathetic to taking their money from under their mattress, or from out of their high street bank.
"Whilst it is encouraging to see that saving has become a habit for so many of us, more needs to be done to ensure consumers know there are ways they can make their savings go further. The low interest rate environment over the last six years has opened up the opportunity for challenger banks – such as Charter Savings Bank, One Savings Bank, Aldermore and Shawbrook Bank – to offer the only viable alternative for savers' money. Currently, challenger banks dominate the best buy tables and pay interest rates that top 2%. With this in mind, some savers could be earning more than four times as much interest as they currently do."
Doesn't it make sense to give them a go? Challengers may be relatively new players in the banking scene but they've certainly risen to the challenge, so to speak, and since they've got the same kind of financial protection as the big names (through the Financial Services Compensation Scheme), there's no reason to stick to high street names. When you could earn as much as four times more interest than the average account, what are you waiting for? Compare savings accounts and get switching!
Check out our savings best buys and see just how dominant challenger banks are becoming
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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