Savers with major banks such as Lloyds and Barclays may be missing out on higher returns, as many high-street institutions offer low interest rates on easy-access accounts.
Financial experts suggest that customers could see substantial improvements in their savings by considering alternative options.
Daily Record highlights how small changes, such as switching accounts, can significantly impact the growth of one’s savings.
With inflation continuing to outpace some bank rates, it’s becoming increasingly important for savers to evaluate their options and look for more competitive offers to ensure their money is working harder for them.
Low Interest Rates Causing Real Losses
Financial experts, including Matthew Parden, CEO of Marygold & Co., point out that many high-street banks offer rates as low as 1%. With inflation currently at 3.9%, the value of savings is effectively shrinking.
As Parden explains,
Many high street banks are known for offering relatively low interest rates on their savings accounts, which can make it very difficult to build up savings in the current environment of higher inflation.
For instance, easy-access savings accounts can offer rates as low as 1%, leaving savers with very little return on their deposits. This can result in the real value of savings diminishing over time as inflation outpaces the growth of funds in these accounts.
For example, Lloyds Bank offers only 1.1% interest on its Easy Saver and Instant Cash ISA accounts, while Barclays pays 1.26% on its Everyday Saver account. These rates are far below the current inflation rate, leading to a loss in the purchasing power of savers’ funds.
How switching accounts could boost savings
The difference in interest rates can have a significant impact. As Parden highlights,
If someone had £10,000 saved with a bank offering a rate of just 1%, they’d earn only £100 in interest over a year.
However, if they switched to a more competitive savings account offering 3%, then they could earn £300 in interest instead. That’s a difference of £200 simply by taking five minutes to apply for a new account, which could go towards other financial goals or help cushion the impact of rising living costs.
Some providers currently offer rates much higher than those of traditional banks. Accounts offering rates of 4.5% or more are available, and switching to one of these could increase interest earned on a £10,000 deposit by £350 over a year.
Higher interest options available
Experts like Amy Knight from NerdWallet UK suggest that savers explore options from other providers. For instance, Nationwide offers 1.8% on its Instant Access account for balances under £10,000, while customers with £50,000 would only earn 2%, which is still below inflation. Knight explains,
Nationwide currently offers just 1.8% interest with its Instant Access account on balances under £10,000. Even if you had £50,000 you’d only earn 2% in this account – noticeably less than inflation.
HSBC offers a 1.5% interest rate on the Online Bonus Saver account, but this increases to 4% if withdrawals are avoided for a year. Knight stresses,
The standard rate paid out on HSBC’s Online Bonus Saver Account is just 1.5%. However, by avoiding making withdrawals for a year, the rate gets bumped up to 4%. This illustrates how crucial it is for savers to think carefully about when they’ll need to take the money out when choosing an account.
Meanwhile, for savers who want to save regularly, NatWest offers up to 6.17% on the Digital Regular Saver for balances up to £5,000. As Knight advises,
For savers who want to start a habit of putting up to £150 into savings each month, NatWest’s Digital Regular Saver currently offers up to 6.17% on balances up to £5,000.
Savers Should Consider Their Options
Savers are encouraged not to remain with their current providers out of habit. Amy Knight further warns,
If you’ve been inconvenienced by IT disruptions, disappointed by measly interest rates, or if you’re keen to explore tools and features from other digital providers, it could be time to break up with your bank.
She continues,
Big-name banks rely on the fact that due to their size, tenure, and established brand identity, they have accrued a lot of loyal customers. They can afford to be less generous with interest rates on savings because they know people get stuck in their ways and many won’t take the initiative to find a better deal elsewhere. Don’t be one of them.
By taking a few minutes to shop around for better interest rates and deals, savers can ensure their savings are working harder for them, providing a much-needed financial boost.
