Savings mistake that could leave you ‘short-changed’ – move to make NOW to get best interest rates
SAVERS with their money in old accounts could risk getting a much lower return than those who switch to new products, a new report has warned.
Analysis by Moneyfactscompare.co.uk showed the average rate of a closed easy access account is just 2.82% this July.
But if customers moved their money to a similar account with a new provider they could see that rate rise to 3.13%.
Doing this would save them an average of £31 per year, based on the analysis of someone who has a £10,000 deposit.
An easy-access account is one of the most common types of bank accounts and allows customers quick access to their money.
Savers typically get better deals if they keep an eye on what competitors are offering and consider switching their accounts.
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If you leave your money in an account after the bank closes it, there is a risk that the interest rates can drop.
In recent years the amount you lose has also widened significantly.
Two years ago, the gap between closed and live accounts was just 0.8% but it has now widened to 0.31%.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, encouraged savers to shop around for better deals.
“Savers are being short-changed if they don’t proactively review and switch from their closed easy access accounts," she said.
"Over the past two years, the average rate on a live easy access account has surpassed the average closed rate, despite base rate rises from the Bank of England and numerous calls for the biggest banks to improve savings rates for existing customers.
"Savers must shake any apathy they have to move their pots, otherwise they will be left disappointed," she added.
The findings come amid a challenging time for savers as they try to manage their money amid a period of economic uncertainty.
Markets expect the Bank of England to cut its base rate in August this year after policymakers kept it at 5.25% in June.
This is important for banking customers because high-street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
High street banks have used the BoE's decision to hold rates to their advantage.
Instead of fighting to offer the best deal, banks are more likely to maintain rates at their current levels - and in some isolated cases make small cuts.
Where to find the best savings rates
Many savings accounts offer miserly rates meaning that money is generating little or no return.
However, there are ways to get your cash working hard. Sun Savers Editor Lana Clements explains how to make sure you money is getting the best interest rate.
Easy access savings accounts offer flexibility for customers, meaning they can dip in and out of cash when needed. However, the caveat is that rates can change at any time.
If you're keeping your money in an easy access account, you'll need to keep checking whether it's the best paying account for your circumstances and move if not.
Check in at least once a month to see what is happening in the market.
Check what is offered by your bank - sometimes the best rates are for customers only.
But do search the wider market as often top savings accounts are offered by lesser known providers.
Comparison sites are a good place to check for the top rates. Try Moneyfactscompare.co.uk or Moneysupermarket.
You can search by different account type. You'll usually get a better interest rate if you can lock your money away for a fixed amount of time, but it's always a good idea to keep some money in an easy access account in case of emergencies.
Don't overlook regular savings accounts often pay some of the best rates, but you'll need to commit to monthly payments. This can be a great way to get into a savings habit while earning top rates at the same time.
Shopping around
Currently, some of the UK's biggest banks are paying less than 2% on their most flexible live savings accounts.
Here is what rate the top five UK banks are offering on live accounts.
- Barclays Bank: 1.65%
- HSBC: 1.98%
- Lloyds Bank: 1.40%
- NatWest: 1.74%
- Santander: 1.70%
However many challenger banks and building societies are working hard to entice savers.
For example, Principality Building Society has a triple access savings account with a bonus rate paying 5.00% interest.
Meanwhile, Paragon Bank has a double access savings account paying 4.91%.
It is important to remember deals are subject to terms and conditions.
“As some of the biggest high street banks pay less than 2% on their most flexible live easy access accounts, some of the top rates on the market overall pay around 5%," Rachel explains.
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"Despite using a trusted brand, the convenience of leaving cash in an easy access account can mean missing out on higher interest rates elsewhere, so it is imperative savers ditch and switch to a better return."
"Building societies and challenger banks continue to work hard to entice new deposits and reward loyal customers so they are worth comparing against the more familiar high street brands," she added.
How you can find the best savings rates
If you are trying to find the best savings rate there are websites you can use that can show you the best rates available.
Doing some research on websites such as MoneyFacts and price comparison sites including Compare the Market and Go Compare will quickly show you what's out there.
These websites let you tailor your searches to an account type that suits you.
There are three types of savings accounts fixed, easy access, and regular saver.
A fixed-rate savings account offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term.
This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account.
Some providers give the option to withdraw but it comes with a hefty fee.
An easy-access account does what it says on the tin and usually allow unlimited cash withdrawals.
These accounts do tend to come with lower returns but are a good option if you want the freedom to move your money without being charged a penalty fee.
Lastly is a regular saver account, these accounts generate decent returns but only on the basis that you pay a set amount in each month.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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