As banks continue to ‘reward’ their most loyal customers by slashing their savings rates, more products are emerging to enable savers to chase higher interest with less effort. Article by Nick Green.
The UK’s savers have missed out on nearly a billion pounds worth of interest since September 2018, according to a report by Citizen’s Advice. The consumer charity network lodged a super-complaint to the Competition and Markets Authority (CMA) on the issue of customer loyalty effectively leading to penalties, including the issue of lower interest rates for savers who stay with the same bank.
The organisation estimates that if people currently holding the lowest interest savings accounts had all moved their savings to the highest interest equivalent accounts, they would collectively have earned around £800m more interest in the ten months from September 2018. This works out as an average £48 a year per saver. The issue is caused by the widespread practice of banks offering high initial interest rates to lure customers in, only for these rates to expire after a short time and revert to a low level. Some banks now pay as little as 0.05 per cent on instant access accounts.
Citizen’s Advice has lobbied the FCA to introduce a ‘basic savings rate’, which would set a legal minimum rate of interest that banks would have to pay on savings. The FCA is now considering this measure, though it would probably leave banks free to set their own basic rates, and only force them to publish these so that potential customers could compare them. Given that savers have proved to be very reluctant to switch accounts in the past, it’s doubtful that even this measure will provide the shake-up the industry needs.
New products aim to beat saver apathy
The core problem remains: switching bank accounts is a chore that many people simply never get round to. One provider that is rising to this challenge is Crowdstacker, a peer-to-peer lender. Crowdstacker’s new product ‘Kepe’ works by automatically moving savers’ cash between banks accounts to chase the best available interest rates.
However, the account can only make use of banks that had signed up to the system, and at the time of writing Crowdstacker has not disclosed which banks are included, or how many. Even so, the new product sets an important precedent. The main attraction of such an account is that it could be ‘fire and forget’ – having set it up, the consumer might not need to switch again. It’s likely therefore that more providers will soon be competing to over the best ‘interest chasing’ accounts, with the largest and best lists of banks to choose from. Given the newness of such products, however, it’s worth consulting a financial adviser before taking the plunge.
The benefits of being a proactive saver
In the meantime, savers can still benefit by manually searching out the best interest rates and regularly switching. For example, First Direct’s Regular Saver Account currently offers a fixed rate of 5 per cent for 12 months only – so if you pay in the maximum £250 per month you get £80.64 interest per year, paid on completion. Many regular savings accounts are limited to 12 month terms, but you can open a new one after the old one expires.
One regular savings account that does not have a 12 month limit is the Learner Earner account from Principality Building society. This consists of an adult and child account (if you want both you must open them together), both paying 4 per cent a year on a £250 per month maximum deposit, up to a maximum balance of £20,000.
Surprisingly, some of the highest interest rates can now be found on current accounts, but stringent conditions usually apply. For example, the Nationwide FlexDirect account pays 5 per cent for the first 12 months, but only on balances up to £2,500 – meaning such accounts aren’t great for savings, unless you can be bothered to set up several with different banks. That said, it is theoretically possible (according to Moneybox’s Paul Lewis) that by moving cash between the best savings accounts you can beat stock market returns in the medium term. So it is always worth shopping around.