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High street vs challenger banks – how much is convenience costing you?

We compare savings products from high street and challenger banks to show you why you might be paying a high price for convenience.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.


All information is correct as at 30 June 2021 unless otherwise stated.


The most popular place to save is with the same bank we have our current account with*. That usually means the high street giants.

We choose these banks because we trust them, and it’s convenient to have our savings alongside our other accounts.

But we’re paying a high price for this convenience. Big banks notoriously pay some of the lowest rates – as low as 0.01% interest on some instant access accounts. It’s often a similar story for fixed terms too.

Even some accounts, which are designed to reward loyal savers, offer the same paltry returns. Some offer a slightly higher rate for accounts that can only be accessed online, but they can still be uncompetitive.

How big banks' savings rates compare

These rates are based on the lowest instant access and one-year fixed terms offered by each provider. Individual bank rates are taken from respective websites. NatWest and Lloyds don’t offer one-year fixed terms. Average rates are sourced from the Bank of England and the best rate in the market is taken from Moneyfacts. Correct as of 28 June 2021.

You could get up to 0.50% on your instant access savings through smaller banks – that’s 50 times more. And up to 1.10% on a one-year fix – 11 times more than some big banks.

Fixed terms don’t usually allow access to your money until they end.

The inflation conundrum

Inflation is the overall rise in prices in the economy. At a time when it’s rising, getting a good return on your cash is key. Otherwise, your hard-earned money will be eroding in value and its future spending power.

The current rate of inflation, running at 2.5%, is already a challenge to savers. But the Bank of England expects it to exceed 3% in the near future. That’s not going to take long to make a noticeable impact on the purchasing power of your money.

Instant access or fixed term savings accounts might not currently be beating inflation. But you can make big strides to reduce its impact if you’re prepared to look beyond the high street.

Better rates and more choice – where to get both

Convenience is one reason big banks can pay such low rates. They have existing relationships with millions of customers who are happy to have their savings with the same provider.

Smaller banks, often called ‘challenger’ banks, offer better rates. They don’t have the same breadth of customer relationships, so need to offer headline rates to bring money in. And they tend to offer more choice than the big banks too.

Take one-year fixed terms, for example. The big banks usually offer a limited range, normally one or two years in length. On the other hand, challenger banks offer accounts ranging from as little as six months, up to five years. This gives you more flexibility to manage your cash in a way that’s right for you.

But can I trust them?

Industry awards for savings accounts typically go to challenger banks rather than the high street. And some challenger banks are set up as specialist savings banks.

There are lots of hoops that banks need to jump through in order to get a banking licence or to be authorised by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). For starters, they’ll need to prove the safety and soundness of their company.

As long as they’re authorised, they‘ll be covered by the Financial Services Compensation Scheme (FSCS). This protects up to £85,000 of your eligible deposits. It doesn’t differ depending on the size of the bank, so smaller banks get the same protection as larger high street banks. But be aware that the £85,000 limit applies to each banking licence. If your bank shares a licence with another, you’ll only get a total of £85,000 protection across both under the FSCS.

Don’t sit and wait for your bank to raise rates

If you’re sat in an instant access account with a high street bank, don’t expect them to raise rates any time soon. If rates do increase, banks could launch new accounts with a better rate, rather than raise the rate on existing accounts. So you might need to take action to boost your returns.

Think it’s a pain moving providers?

It can feel like a lot of hassle to move your savings to a new provider and not worth the effort. But by sitting in a high street account, you’re exposing your money more to inflation. By moving, you could offer your savings some shelter, reducing the impact and potentially being better off.

An easy way to boost your returns

Active Savings makes it easy to choose new savings products. One online account gives you access to lots of banks and building societies. Choose easy access and fixed terms, ranging from just a few months up to five years.

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.

Once you’re set up it only takes a few clicks to open new products. No paperwork, no hassle. And you’ll get a choice of great rates, far above the big high street banks.

This article, like the Active Savings service, is not personal advice.

More about Active Savings

*HL Survey September 2020, 1,461 respondents.

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority(firm reference number 915119). 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.

Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

READ MORE

Explore our Investment Times summer 2021 edition for more articles like this.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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