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Savers urged to switch to get best rates

Savers urged to switch to get best rates

Category: Savings
Author: Tim Leonard
Date: 31/07/2018

Savers have been reminded of the importance of regularly switching their accounts if they want to maximise the interest they receive from their nest eggs.

The call comes just a week after the Financial Conduct Authority (FCA) revealed how savers who leave their funds in low-interest savings accounts receive little to no reward for their ongoing loyalty. In light of its findings, the regulator has proposed the introduction of a basic savings rate for easy access accounts and easy access ISAs, which would come into play once the account had been opened for perhaps a year.

However, at the same time, the FCA once again highlighted the importance of switching deals more often. Indeed, only 9% of consumers were found to have switched their cash savings provider in the last three years.

Now, our own research at Moneyfacts.co.uk reaffirms that savers who don't switch regularly and stay with their familiar brand are missing out on vital interest.

For instance, savers who hold £2,500 in an easy access account paying 0.05% will lose out on earning £122.75 more in interest than if they were used a high-interest current account paying 4.96% instead. They could also earn 1.35% more moving to the best easy access account on the market than staying with the lowest rate provider.

Highest Rate (gross) Average rates
(gross)
Diffrence in
rates
Credit interest current accounts Nationwide BS – 4.96% (FlexDirect) 0.92% 4.04%
Easy access accounts Coventry BS – 1.40% 0.53% 0.87%
Fixed term regular savers first direct, HSBC, M&S Bank,
Nationwide BS and Santander – 5.00%
2.66% 2.34%
Average credit interest is based on all current accounts on the market that pay interest.

Source: Moneyfacts.co.uk

"It remains the case that consumers can get more competitive interest rates on current accounts, fixed term regular savers, or with more unfamiliar brands in the savings market, so it is much more beneficial if customers switch," said Rachel Springall, finance expert at Moneyfacts.co.uk.

As to where people look to move, Rachel admits that some of the more obvious options are not always as straightforward as they may seem.

"Savers who prefer to open an account in branch will find a distinct lack of interest in cash savings among the high-street brands, which appear to be taking a vacation from the Best Buy tables," she explains. "Customers could indeed get a 5% gross regular savings account tied to a current account, but this is usually a one-year offer and doesn't help those who have larger lump sums to put aside and there is also usually a restriction with how much savers can put in over the year.

"High-interest current accounts have therefore been a popular choice for savers over the last few years, but they also restrict the amount of interest savers can earn on their funds. Consumers who rely on the interest from their cash savings as a form of income will have felt the pinch of low rates more so, and if they have remained loyal to their provider, they are likely to be missing out on much higher rates from more unfamiliar brands. Savers could achieve returns as high as 4.96% gross, but many other current accounts pay as little as 0.10% or no interest at all."

For all these reasons, savers are encouraged to perhaps look outside their comfort zone, and consider online options and the less well-known banking brands.

"Those savers who are not prepared to open a savings account online will also be missing out on some of the Best Buys," Rachel adds. "Right now, eight out of the top 10 easy access accounts require savers to apply online. Savers need to keep on top of the changing market and not stay with their more familiar bank. In fact, every easy access account from the big banks pays less than the base rate (0.50%). Switching is still key for savers to grab the best returns on the market."

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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