Savers miss out on £1.7bn of returns
A generation of savers have only experienced record low rates so millions of people are used to getting virtually nothing for their hard-earned cash. As such, many believe there’s no point in saving or switching to a better deal.
With rising inflation (2.9% in May) outpacing wage growth (2.1% including bonuses in the three months to April) it’s more important than ever that savers take action.
The Financial Conduct Authority’s (FCA) cash savings market study report of 2015 revealed there was £160bn worth of savings languishing in easy access accounts earning an interest rate of 0.5% or less in 2013. Since then, the Bank of England base rate has dropped to 0.25% with providers also cutting rates on savings products. This means beleaguered savers have had to put up with 100 months of low interest rates.
To tie in with RCI Bank’s second anniversary, its research reveals the average value of cash savings is currently £11,260 per person with an average £239 stashed away each month.
Based on £11,000 of savings, those receiving 0.5% interest would net £55 per year. But moving that sum to RCI’s 1.1% easy access account would mean they earn £121 a year, more than double the amount in the 0.5% account.
Against the £160bn worth idling in low-paying accounts, Savings Champion estimates consumers earn £800m in interest on that amount. Yet that same sum in an account paying 1.1% would net a combined £1.7bn, £960m more.
Anna Bowes, director of Savings Champion said in the two years since RCI launched in the UK, it has provided savers with a consistently competitive offering, though she noted that the current best buy easy access account is from Ulster Bank, paying 1.25%.
RCI’s research further found that engagement in the savings market is low: A third (32%) have never switched savings account and three in ten (29%) have left their savings pot idle for five years without switching providers.
Given anaemic savings rates, 12% of consumers said they now do more provider research before choosing where to put their money. However, 11% said they no longer trust the high street banks following their role in the financial crisis.
Jean-Louis Labauge, CEO of RCI Bank, said: “Although engagement in the savings market is low, there is a real appetite to save; as a nation, we understand the importance of putting money away and saving for a rainy day. The fact that people are willing to give up luxuries says it all. The financial crash of 2007/08 has had a lasting impact on this. Our research shows that just over a tenth (12%) now spend less every month, and 10% feel that they need to save more every month.
“However, the current savings landscape does not feed this appetite – and customers are calling for more action to be taken to encourage saving. In order to achieve good financial health, savers need to be more at the heart of monetary policy. An end to quantitative easing, as has been exercised in the US, is just one of the many ways that the Bank of England could set out to increase interest rates again and improve the market.”