Customers of some of the UK’s biggest banks—Lloyds, Barclays, HSBC, and NatWest—are being cautioned to rethink where they keep their savings. According to financial experts, the average interest rate on easy-access accounts and cash ISAs offered by these high street banks is significantly below what’s available on the wider market.
Matthew Ford, CEO of savings provider Sidekick Money, described the savings landscape as “very dynamic and competitive”, urging savers to shop around for better options. He explained:
“The average easy access cash ISA rate across the big four banks is around three times lower than what’s available in the market. It’s a similar story with non-ISA accounts.”
The warning comes as high street banks continue to offer rates as low as 1.15%, while competitive options from smaller or online providers offer rates exceeding 5%, according to data from Moneyfactscompare.co.uk.
The Cost of Staying Loyal to Big Banks
Experts warn that sticking with low-rate savings accounts could mean missing out on hundreds—or even thousands—of pounds in potential returns. Brian Byrnes, head of personal finance at Moneybox, highlighted the financial impact of exploring better rates:
“For a saver contributing £20,000 annually, this could translate to an additional £640 in interest savings, so it’s well worth your time.”
Byrnes also emphasised the importance of maximising allowances like the Personal Savings Allowance and the annual ISA limit to optimise returns. He explained how savers can allocate their allowance across different types of ISAs depending on their goals:
- Lifetime ISAs: For those saving for a first home.
- Cash ISAs: Suitable for short- or medium-term goals.
- Stocks and Shares ISAs: Ideal for long-term investment growth.
This tailored approach to savings can help individuals achieve better returns while aligning with their financial objectives.
Why Are Big Banks Falling Behind?
High street banks often rely on customer loyalty, knowing many savers are hesitant to switch providers. However, the disparity between their rates and market-leading options has grown increasingly stark.
For example:
- Lloyds Bank’s Cash ISA Saver offers a rate starting at just 1.15%.
- In contrast, some providers are offering easy-access cash ISAs with rates above 5%.
This gap has prompted financial advisors to urge customers to shop around and compare rates regularly. Matthew Ford noted that non-traditional providers are leading the way in offering better deals, although these accounts may require additional research to find the right fit for individual needs.
How to Make Your Savings Work Harder
If you’re concerned that your savings aren’t earning enough, there are several steps you can take to maximise your returns:
1. Compare Savings Rates
Use tools like Moneyfactscompare.co.uk or financial advice platforms to compare interest rates across providers. Look beyond high street banks to explore options from online banks, building societies, and challenger providers.
2. Understand Your Savings Goals
Decide whether your savings are for short-term needs, such as an emergency fund, or long-term goals like a house deposit. This will help determine whether a Cash ISA, Lifetime ISA, or other account is best suited for you.
3. Consider Fixed-Term Accounts
For savers who don’t need immediate access to their funds, fixed-term accounts often provide higher interest rates than easy-access accounts.
4. Use Your Personal Savings Allowance
Most individuals can earn up to £1,000 in interest tax-free (£500 for higher-rate taxpayers). Ensure your savings are structured to make the most of this allowance.
What’s Next for Savers?
As interest rates fluctuate and inflation continues to squeeze household budgets, experts are urging savers to take a more proactive approach to their finances. If you’re a customer of one of the UK’s major banks, the message is clear: shop around or risk leaving significant money on the table. Many high street banks continue to offer interest rates that are well below what smaller or online providers are able to offer, and staying loyal could cost you hundreds—or even thousands—of pounds in lost returns over time.
With competitive savings rates now exceeding 5%, the opportunity to triple your returns compared to rates offered by some major banks is well within reach. For example, on a balance of £10,000, the difference between earning 1.15% and 5% interest could amount to an additional £385 annually, which adds up significantly over the years.
Financial experts also highlight the importance of being strategic with your savings. Understanding your goals—whether short-term, such as building an emergency fund, or long-term, like saving for a house deposit—can help you choose the right account for your needs. For longer-term goals, consider fixed-term savings accounts or even Stocks and Shares ISAs, which, although riskier, often provide better growth over time.
It’s also essential to keep an eye on your Personal Savings Allowance and the annual ISA limit, as these can help you maximise your returns while minimising tax obligations.
