The big four banks – Barclays, Lloyds, HSBC and NatWest – came under fire last year from MPs last year for failing to pass on base rate increases to savers, and they continue to lag behind the market. Yet all too often savers only have themselves to blame, by failing to shake off their inertia and move their money elsewhere.
A staggering £250billion of deposits generate no interest whatsoever, Bank of England figures show, often in legacy accounts that are closed to new business.
New research shows that a saver with £30,000 who switched from the average branch-based easy access account with a high street giant to a best buy five-year fixed rate could be a staggering £4,681 better off by the end of the term
The average easy access branch-based savings account currently pays just 1.69 percent, at a time when base rates stand at 5.25 percent.
Yet it possible to get as much as 4.55 percent a year, fixed for five years, by shopping around, said Hargreaves Lansdown head of personal finance Sarah Coles.
With interest rates likely to start falling, the easy access account would pay total interest of around £1,818 over the next five years.
By contrast, the five-year bond would pay a total of £5,830. However, fixing is only appropriate for savers who can lock their money away for the full term, as there are penalties for accessing funds early.
Coles said many savers lose out because they do not realise what a poor deal they’re getting, as a third of us have no idea how much interest we’re earning on our savings.
Yet one in four have taken action and switched. “Making your money work harder could leave you thousands of pounds better off,” Coles said.
Putting your money to work will be even more important as inflation and interest rates are likely to start falling this year, possibly substantially.
Today’s best buy easy access account from Metro Bank pays 5.22 percent, more than most fixed-rate bonds, while SmartSave’s one-year fixed rate bond pays 5.27 percent.
“You may get a lower interest rate when fixing for longer at the moment but if markets are right and interest rates do fall, overall you’re likely to be better off fixing for longer if you can,” Coles added.
READ MORE: ISAs rates drop with new market leaders for fixed rate accounts
Anna Bowes, founder of savings rate tracking service Savings Champion, said base rate appears to have reached its peak and we may not see many more savings rate increases.
“I’m afraid that the fall in top savings rates has continued. All the top fixed-term bonds rates have dropped in the last few days alone.”
Easy access accounts pay more interest but Bowes warned these are variable rates, and banks are free to cut them at any time.
With markets accepting that the base rate has reached its peak, we may not see many more increases, she added. “If you’re thinking of locking some money away to hedge against further rate cuts, you might want to get a move on.”
Bowes also suggested spreading your money between a range of different accounts with different terms, to get the best of all worlds. “What you don’t want is to leave large sums sitting in an old account with your high street bank. That’s just throwing money away.”
