So-called ‘challenger’ banks are offering six times more interest on savings than consumers can find on the high street.
According to an investigation by consumer group Which?, savers opting for an account with a high street bank instead of lesser-known alternatives are losing nearly £300 over two years.
“Savings rates for new savers plummeted almost overnight shortly followed by a flood of rate cuts for existing customers who saw their rates reduced, in many cases, multiple times,” said Anna Bowes, director at SavingsChampion.co.uk.
“However, over the past year, a new breed of lesser known challenger banks come out on top with the highest interest rates on offer, leaving the traditional banks languishing miles behind.”
RCI Bank UK, for instance, currently offers a market-leading instant-access deal, paying 1.65% AER. While Paragon Bank, Shawbrook Bank, Aldermore Bank and Charter Savings Bank are also challenging the big players by offering competitive rates.
And the returns are not to be scoffed at: those who invest £10,000 in RCI Bank's Freedom Account, for instance, will earn £333 interest over two-years, compared to just £110 in Santander's eSaver account. While Barclays Everyday Saver and Lloyds Easy Saver customers would earn considerably less, £50 and £60 respectively - almost £300 lower than the top-paying account from RCI Bank UK.
Knowledge Can Gain You Pounds
The reason you may not know you are earning next to nothing on your savings is that your bank or building society has to make you aware of any changes, but it does not have to contact you personally, or before the change, unless it results in a "disadvantageous change of a material nature". If you have a branch-based account, it can do so simply by putting a notice on its website, advertising in the branch and in selected newspapers.
It is crucial to keep an eye on how much interest your account pays and when any fixed rates or bonuses expire. If you’re getting a bad deal, it’s time to switch.
Banks and building societies are always launching new savings accounts with competitive rates to attract new savers – you might as well make the most of it.
Be Cunning with Comparison Websites
Using a comparison website is often the easiest way to find the best deal. To get a complete list of the best-paying accounts from all UK banks, select "All Accounts" when doing your search, not just those that pay a commission to be promoted. Then compare accounts with sites such as moneysupermarket.com, uSwitch.com and moneyfacts.co.uk.
Another way to stay on top of your interest rates is to use an online savings account monitor such as Rate Tracker; www.savingschampion.co.uk/rate-tracker, a free service that reminds you when your interest rate is set to fall.
Savers can further boost returns by opting for a current account to hold their funds. Not only do many offer high rates of in-credit interest – often far higher than could be achieved from a traditional savings account – but many providers offer generous cash incentives to encourage consumers to switch.
"It seems that providers are abandoning their savings accounts in favour of their current account offerings, which have recently been bolstered by an abundance of cash incentives to entice new customers," said Charlotte Nelson, spokesman at Moneyfacts.co.uk.
"Savvy savers would be wise to take advantage of this, as some high interest current accounts now pay returns of up to 5%."
Savers should also not forget about using their cash ISA allowance of £15,240, if they haven’t done so already and could choose from easy access and fixed rate options.
According to SavingsChampion.co.uk, the top rate on offer for an easy access account is 1.50% from Coventry Building Society. Savers looking to fix should look to Virgin Money for the top rate for one year (1.65%), State Bank of India for two years (2%) and United Bank UK for three years (2.30%) and five years (2.55%).
Bowes pointed out that while the introduction of the Personal Savings Allowance (PSA) in April 2016, means that savers will potentially be getting more of their savings tax free and may question the need for a cash ISA, the cash ISA allowance is in addition to the PSA and fund held will remain tax free in the future.
“If you do not use your cash ISA allowance each tax year, it will be lost forever and you will not be able to replace it,” she said.
This could well be the ideal solution, in the short-term at least, as sadly, the savings landscape looks set to remain bleak for quite some time yet.
Nelson added: "All savers want to do is catch a break amid the torrent of rate cuts and poor interest deals, but at the moment their only hope rests on a possible base rate rise later this year."
