Following the news that inflation has risen to a 41-month high, savers are no doubt wondering what they can do to preserve their hard-earned cash. It's more important than ever to make sure you're getting the best savings rate possible, and according to research from the BSA, heading to building societies could be one of the best ways to achieve that.
The research found that building society savers received an average interest rate of 1.58% on fixed rate bonds and notice accounts during 2016, compared with an average of 1.30% across the market (according to Bank of England figures). For instant access accounts, savers with building societies enjoyed an average rate of 0.88% over the 12-month period, compared with 0.65% overall.
"These results demonstrate that savers with building societies get a better deal on cash savings," said Robin Fieth, chief executive of the BSA. "This includes accounts closed to new deposits, showing that at a time of low interest rates across the market, building societies have looked after their loyal savers by providing value over the long-term."
Our own data backs this up. Take a look at our savings Best Buys and you'll see a distinct lack of high street banks making the cut – most accounts in each sector's top 10 are from building societies or challenger banks, with building societies making a particular dent in the cash ISA and easy access markets.
Indeed, the top two bonus easy access savings accounts are from building societies – West Brom BS and Skipton BS, which pay rates of 1.05% and 1.02% respectively – while Newcastle BS offers the market-leading one and two-year cash ISAs. Mainstream banks, meanwhile, fail to make the top 10 in just about any sector, so it's clear they're not the ones to go for if you want to secure the best savings rates.
But why aren't they offering loyal savers the returns they crave? Well, because they don't have to!
Competition has plummeted in recent years thanks to the Funding for Lending Scheme, which gave banks access to cheap funds that they could lend out. This meant they didn't need to rely on savings deposits to fund their lending activities, and so they dropped their rates accordingly – and they've been falling ever since.
Conversely, most building societies weren't part of the scheme, so still needed to offer decent interest rates to attract savers. They may have also been forced to lower rates in recent years thanks to wider economic conditions, but they've largely been holding the fort and offering the most competitive deals – and now challenger banks are getting in on the action, too.
Challenger banks are new to the market and so, much like building societies, still need savers' funds to build their balance sheets. It's for this reason that they're often the ones at the top of the Best Buys, and are now giving building societies a run for their money.
This all means that you probably shouldn't be relying on mainstream banks if you want to find the best savings accounts. Instead, think outside the box and consider these newer challenger banks, or opt for a local building society if you still want a familiar name. Whatever your thoughts, make sure to check out the best savings rates before you make your decision, and see how you can get a better deal.
Compare the top accounts using our whole of market savings search tool
Don't forget about your 2016/17 ISA allowance – check out the top cash ISAs to find the best home for your tax-free funds
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.