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Savings rates – how much is sticking with your high street bank costing you?

We look at why loyalty to your high street bank could be costing you and how to get better rates on your cash savings.

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.

Lots of us manage our cash savings by convenience. More than half of people we surveyed* have the majority of their savings with the same bank they have their current account with.

That’s despite most large high street banks and NS&I paying just 0.01% AER/Gross** on some of their most popular instant access accounts. Is your bank on the list?

60%* of savers aren’t looking to switch their savings, even with the savage cuts savers have endured over the past year. Back in January 2020, the average instant access account paid 0.41%. It’s now just 0.06%.

Is loyalty costing you?

Unfortunately, our lax approach to saving doesn’t stop at our choice of provider – it’s also in the type of savings products we choose. Of the £900bn savings market, around 80% is held in instant access accounts. Only a small percentage is in fixed term savings, even though they usually offer the best rates.

Of course, it makes sense to keep some of your savings in instant access accounts for any emergencies. But you don’t necessarily need to keep everything in there.

How much you should set aside will depend on your own circumstances, but financial advisers usually suggest three to six months’ worth of expenses. If you’re retired, you might want one to three years’ worth. For anything that’s left over, it’s worth considering fixed term savings.

Here’s an example of two types of savers and how switching savings could make a big difference in just one year.

This example is provided for illustration purposes and is not personal advice. Fixed term products only allow access to your money when they end, and inflation reduces the spending power of cash over time. These examples are based on a savings pot of £10,000.

High street Harry

Harry likes to stick with his large high street bank.

He might’ve been enticed by a teaser rate years ago, but is now left with all his savings in an instant access account paying next to nothing. Although Harry might know he’s not getting the best rate, he feels safe in knowing all his money is held together.

Unfortunately for Harry, he can only expect around £1 in interest on his £10,000 savings pot after a whole year.

Harry could get a better rate by moving his savings to a smaller bank. And, like the big banks, his money could still be protected under the Financial Services Compensation Scheme (FSCS), where eligible deposits are protected up to £85,000.

Find out more about the FSCS

Active Amy

Amy likes to keep her money working hard, so she chooses to blend easy access accounts with fixed term savings to help boost her overall rate.

She uses Active Savings as she likes the range of products available. It’s also easy to manage savings with multiple banks through one online account.

Amy splits her savings across a few products of different lengths – meaning she can access some of her money when she needs it.

Easy access earning 0.30% (AER/Gross)

One-year fix earning 0.65% (AER/Gross)

Two-year fix earning 0.76% (AER/Gross)

By taking control of her savings, Amy is earning £57 interest on the same £10,000 savings pot – £56 more than Harry.

These are just examples of how Active Savings can be used to boost your overall rate. Any products you choose will need to suit your own circumstances and the rates available at the time. Examples are based on savings products currently available through Active Savings and on the assumption both Harry and Amy don’t make any additional contributions or withdrawals.

Instant access accounts from high street banks typically let you withdraw your money instantly. With Active Savings, withdrawals from easy access products usually take up to one working day.

Waiting for a great rate? Sign up to our alerts and we’ll let you know as soon as a great rate is added to Active Savings.

Chart showing interest earned over one year

Source: Products available through Active Savings on 11 January 2020 and author’s calculations.

How much better off could you be?

Active Savings makes it easy to manage your savings while making sure you earn a great rate of interest. You can pick and mix easy access and fixed term savings from a range of banks and building societies. Better still, it’s all managed through the convenience of one online account with one login.

Savings calculator – how much better off could you be?

With Active Savings we’ll help you stay on top of your cash by telling you when a fixed term product is about to end. Choosing a new savings product is easy and only takes a few clicks.

So why not improve the way you save? Active Savings could be the only savings account you ever need.

 

The best rates on Active Savings

Easy access

Up to
0.35% | 0.35%
(AER | Gross)

Up to 1 year

Up to
0.60% | 0.60%
(AER | Gross)

Up to 2 years

Up to
0.80% | 0.80%
(AER | Gross)

Up to 3 years

Up to
0.60% | 0.60%
(AER | Gross)

Easy access

Up to
0.35% | 0.35%
(AER | Gross)

Up to 1 year

Up to
0.60% | 0.60%
(AER | Gross)

Up to 3 years

Up to
0.60% | 0.60%
(AER | Gross)

Find out more

Please note the products above are some of our most popular, but more are available. Click the link above to see our full range. Products can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Easy access products pay a variable rate and fixed term products pay a fixed rate.

AER (Annual Equivalent Rate) 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. Once you have opened a fixed term product the rate won't change, but rates on easy access products can vary.

Gross means the 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.

*HL survey, September 2020, 1461 respondents.

**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.

What did you think of this article?

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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