How much is loyalty to your bank costing you?

Our loyalty to our bank, and to savings accounts paying miserable rates of interest, is costing us huge sums in lost interest. During the pandemic, billions have flowed into instant access accounts, with the big banks hoovering up a lot of this. But these high street stalwarts pay as little as 0.01% (AER/gross). On a savings pot of £10,000, that’s just £1 interest after a whole year.

Think rates are too low to bother switching?

It’s easy to see why people don’t think it’s worth the effort of switching while rates are so low. But rates have picked up in recent months. So if you’re earning next to nothing in a savings account paying 0.01% (*AER/gross), you could make 50 times the interest by switching to the most competitive easy access rate on the market. If you had £10,000 and were able to tie up your money for a year, you could make 140 times the return.

On Active Savings, we’ve also seen rates rise recently. Some are now the highest they’ve been in a year.

Over the past few years, we‘ve overwhelmingly put money into instant access accounts instead of fixed rate accounts. This is the right place for your emergency savings of 3-6 months’ worth of essential expenses if you’re working (one to three years’ worth if you’re not), and any money you know you’ll need in the immediate future. But it could be a missed opportunity for the rest of your savings.

Fixed terms usually pay the best rates, but you can’t normally access your money until they end.

The gap between the interest available on easy access accounts and fixed rate accounts is starting to open up again. The most competitive rate fixed for a year term is now paying more than twice the best instant access rate.

How much is loyalty to your bank costing you?

The second most common reason for money languishing in accounts paying measly returns is that we trust our bank. We know the high street stalwarts well, so it’s easier to feel more comfortable leaving our money with them, rather than using a less well-known online bank.

However, these newer banks have to follow the same rules as those high street stalwarts in order to be allowed to operate in the UK. They also come with all the same protections. So if a bank were to fail, the first £85,000 is guaranteed by the Financial Services Compensation Scheme (FSCS).

These smaller and newer banks tend to offer the best rates. So we need to consider how much interest we’re losing out on by choosing not to trust a bank just because it doesn’t feel as familiar.

This switching is too much hassle?

We are all busy and sometimes it can feel like a bit of a rigmarole to have to keep moving money around for a better rate.

Fewer than a third of people have switched accounts in the past 12 months (31%)**, while half haven’t switched for five years or longer or have never switched at all (50%).

Overwhelmingly we’re not switching because we don’t think it’s worth it when rates are low. Ironically this is when switching can make the most percentage difference, as the rates available from big high street banks are now so low.

**Source: HL Survey conducted by Opinium, Sept 2021, 2,039 responses.

Cut out the hassle with Active Savings

One way to eliminate the hassle of switching is with an online cash savings platform, like Active Savings. Instead of approaching lots of banks and building societies directly, you can open one account with one application and move your money between different products, with different banks and building societies, in a handful of clicks.

You can see all your products in one place, which makes it much easier to manage. And you don’t need to remember different sets of security information.

Choose from easy access, limited access and fixed term products ranging from just a few months up to five years. Get started in minutes.

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

This article isn’t 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.

Expected profit rate (EPR): Islamic banks offer an expected profit rate rather than interest on their savings products in order to comply with Sharia banking principles.

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.