Cash savings – avoid these 7 expensive savings myths

Savers have been ground down by a decade of poor interest rates. It’s left millions of people stuck in rock-bottom savings accounts with high street giants.

When we asked people why they didn’t bother switching, almost half said there was no point as rates were too low.

But by not switching we could be paying a costly price.

Most high street banks pay just 0.01% (AER/Gross*) on savings. So if you held £1,000 in a savings account for a year, you’d make just 10p – after current inflation that means you’d lose nearly £6 in spending power.

We need to get to grips with our savings. And that means getting to the truth behind the most common savings myths, so we can get back in control of our money.

7 savings myths

1. There’s no point switching accounts when rates are so low

Rates are at record lows at the moment. But that doesn’t mean you can’t get more for your money.

With Active Savings you can get 30 times more on your money by switching from a high street account offering 0.01% (AER/Gross) to an easy access product.

The better the rate you get, the closer you’ll come to matching inflation, helping to protect more of the spending power of your money.

High street banks offer instant access accounts which allow immediate access to your money, Active Savings offers easy access accounts and withdrawals usually take one working day.

2. If I switch, the account will just cut its rate and I’ll need to switch again

Rates have been falling fast, and because easy access products pay a variable rate there’s no guarantee it won’t drop. But if your new account remains more rewarding than your old one, you’ve still gained from switching. And there’s nothing stopping you from switching again.

Once you have 3-6 months’ worth of emergency cash in an easy access account, you could think about tying up the rest of your savings in fixed term products.

These pay a fixed rate, which lets you lock it in for the duration of the product. In return you can’t usually access it until they end. You can currently get up to 0.55% (AER/Gross) through Active Savings by fixing for a year, and you can be sure the rate won’t fall in the interim.

3. It’s too much hassle to move accounts

Switching can be a pain. Scouring the market, filling in forms and proving who you are every time you open new savings with new providers. Not to mention setting up new sets of security information and then keeping track of it all.

That’s where Active Savings can help.

One online account gives you access to a variety of savings products from a range of banks and building societies. You’ll see all your savings products in one place and, once you’re set up, you can open new products in just a few clicks. No paperwork, no hassle.

4. I’ve been with my bank for decades, so I get rewarded for loyalty

This feels like it should be true, especially when your bank offers ‘special’ savings rates to those with current accounts. In reality, those rates are rarely market-beating, so you’d probably make more from switching.

In fact, some high street banks now pay the same rate for these ‘special’ accounts as they do to new savers.

5. I trust my bank more than the newer online ones

Banks have to jump through all sorts of hoops before they’re granted a banking licence in the UK. They need sound financing, a strong business plan and the right people in charge – online banks are no exception.

Of course, any bank can fail, whether it’s an old high street stalwart or a newer online player. But with any institution that holds a UK banking licence, the first £85,000 you have is protected by the FSCS.

6. Sharia Banks aren’t for me

They’re often at the top of the best-buy charts, but they’re unfamiliar to lots of people. Some people are also worried they offer an expected profit rate, which sounds less reliable than an interest rate. But there are three things to bear in mind:

Find out more about sharia banking

7. You can’t get good customer service without a branch

Customer service doesn’t need a branch. Online banks are often rated as the best.

Having said that, online banks aren’t guaranteed to have great service either, so check out reviews and ask friends and family about their experiences. Make sure you’re also happy with the ways it offers for you to get in touch.

Discover a better way to save with Active Savings

“In times of worry and uncertainty I need to know that all savings & investments are with a provider I can trust.” Mr Neill, Lanarkshire.

“Active Savings transformed the way I manage my retirement cash.” Mr Fox, Bedfordshire.

Active Savings helps take the hassle out of earning a great, consistent, return on your savings. One online account gives you access to a variety of competitive rates from a range of banks and building societies.

Join the thousands of clients who are improving their savings with Active Savings.

This article and the Active Savings service don’t provide personal advice. Please remember that inflation reduces the future spending power of cash.

*AER (Annual Equivalent Rate) - AER shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products.

Gross - The interest rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.