Savers with major banks like Barclays and Lloyds Bank are being encouraged to check if better interest rates are available elsewhere. Industry experts are prompting savers to shop around, as switching accounts could significantly enhance the growth of their savings by hundreds of pounds each year.
Matthew Parden, CEO and co-founder of savings provider Marygold and Co., has issued a warning to loyal customers of big banks against complacency. He said: "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."
With inflation now at 2.8%, many well-known banks are providing instant access savings rates that are less than half of this rate, leading to a decrease in the real-terms value of cash held in these accounts. For instance, Lloyds Bank's basic rate on its Easy Saver and Instant Cash ISA is just 1.1%, while Barclays offers 1.26% with its Everyday Saver.
Mr Parden outlined the significant financial advantages of switching banks, saying: "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."
Savvy savers could witness an even higher return on their money with several providers now offering rates on easy access accounts of 4.5% or above; this means you could boost your annual interest earnings to £350 if you hold £10,000 in such an account.
Echoing the sentiment, NerdWallet UK's personal finance expert Amy Knight emphasized that those accruing meagre interest with major banks should start looking for better options elsewhere. She said: "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."
She also noted that "The standard rate paid out on HSBC's Online Bonus Saver Account is just 1.5%. But if customers refrain from making withdrawals for a full year, the interest jumps 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.
"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."
Ms Knight stressed the importance of not merely settling with your current bank provider, suggesting that recent disappointments might signal it's time for a change:.
She explained: "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.
"Big-name banks are banking on their customer loyalty – assuming that because of their size, tenure, and brand identity, customers will stay put despite less competitive interest rates."
She advised against complacency, saying: "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."
