The UK’s big six banks are “lagging behind” when it comes to increasing interest rates for easy access savers, according to Atom Bank which this week launched a market-leading nine-month fixed rate savings account paying 3.95%.

Its analysis revealed that of the rate rises announced by the big banks, they are often attached to products with specific requirements.

The app-based bank, founded in 2013, also said easy access accounts offered by the big banks all currently pay under 1% interest to customers.

Meanwhile, the top-paying easy access accounts – from Atom Bank and Tandem – both pay 2.55%.

The Bank of England increased the base rate from 2.25% to 3% last week, and it’s predicted to continue hiking it to 4.5% to bring down inflation which currently stands at an eye-watering 10.1%.

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Since December 2021 where the base rate stood at 0.1%, it has now risen eight times in a row.

A raft of providers have increased their savings rates off the back of the base rate hikes, but it is challenger banks which largely remain at the top of the best buy savings tables.

Big six banks yet to pass on rates

Analysis from Atom Bank revealed the big six all pay less than 1% on accounts that don’t have any restrictions (such as having a linked current account, a maximum monthly deposit, or a set term of 12 months).

• HSBC pays 0.5% on its Flexible Saver and 3% for its Online Bonus Saver, but the rate is unavailable for any month a withdrawal is made and it is only available on balances of up to £10,000.
• Santander’s Everyday Saver has a rate of 0.2% and its eSaver pays 1.5% but the term for the higher-paying account is 12 months.
• NatWest pays 0.5% on its Instant Saver Account, while its Digital Regular Saver, which has a maximum deposit limit of £150 per month, pays 5% on balances from £1,001 to £5,000 and 0.5% on any amount over £5,000. You need to be a NatWest current account holder to have either account. The savings threshold for the Digital Regular Saver will however rise to £5,000 in December.
• Nationwide pays 0.3% for its Instant Saver and while its Flex Instant Saver pays 2%, this rate is only available to current account holders.
• Barclays pays 0.25% on its Everyday Saver, and 5.12% on its Rainy Day Saver, only available to Blue Rewards members, and on balances of up to £5,000.
• Lloyds pays 0.4% on its Easy Saver, its Club Lloyds Saver account pays 0.7% but is only available to Club Lloyds current account holders.

‘Savers want more choice and products that don’t come with a catch’

Mark Mullen, chief executive officer at Atom, said: “With rising inflation and winter approaching, savers want better rates, more choice and easy products that don’t come with a catch.

“We’re really seeing now how loyalty to your bank can be bad for your financial health. Now is not the time to be taking advantage of savers, that’s why we continue to offer a better deal, with exceptional service, because it is the right thing to do.

“Banks need to make life simple for customers. With Atom products, there are no hidden requirements. When we say easy access, we mean it. Existing and new customers alike can access our range of simple savings accounts in minutes through our app and put their hard-earned money to work.”

Why do challenger banks tend to lead the best buy tables?

The analysis from Atom Bank showed that in the easy access market, the big banks are not offering market-leading accounts. Yet many have upped rates across a number of other products.

For easy access and fixed-rate accounts, however, it is still the challenger banks that dominate the savings rates tables.

One of the reasons for this is because challenger banks operate differently to the big high street banks. Challenger banks, for example, rely much more heavily on deposits from savers’ accounts.

Rachel Springall, finance expert at Moneyfacts, said: “Challenger banks work very differently to large high street banks and their aim to attract savings deposits is clear from their positioning in the top rate tables.

“High street banks do not need to entice savings balances to fund their future lending like they may have been more inclined to do in the past. The link between base rate is much more disconnected and there is no guarantee savers will benefit from every single rise.”

Challenger banks can cut costs without a branch network

Another way challenger and high street banks differ is how people can access them. Many challenger banks are digital only, through a website or app, instead of having a big branch network.

This means they can keep costs down but it’s also a drawback for people who want to be able to go into a physical bank to manage their money.

Springall added: “Challenger banks offer savers an alternative to high street banks, but some are digital only, which may not be accessible for everyone.

“Digital only brands can avoid the costs of maintaining a branch network, so this streamlined setup can mean they offer better rates than their high street competition. However some challenger banks can have a small branch network depending on the size of the business and also offer decent rates too.

“It’s positive to see challenger banks continue to inject competition into the savings market but it is down to savers to shake their loyalty and switch if their bank is not paying a competitive return on their hard-earned cash.”