High street banks ‘shortchanging’ savers on interest rates
The Bank of England (BoE) pushed up rates by 1.25% between 1 December 2022 and 1 May 2023, but at the same time the average rates on instant-access savings accounts have risen by just 0.63%.
This means that savers could be missing out on interest. Choosing a market-leading instant-access account from challenger bank Chip, for example, could result in £312 more in interest over a year when compared to the Everyday Saver account from Barclays, according to Which?.
The BoE has been raising interest rates over the last few years after they dropped to an all-time low of 0.1% in March 2020, at the start of the Covid pandemic.
As inflation soars, the central bank has been increasing rates in an attempt to cut spiralling inflation. This has resulted in many savings rates rising but the consumer group said it is mainly challenger banks who are offering higher interest rates.
It also found that almost 81% of instant-access accounts are paying the same rate as they were one week before the latest base rate rise on 11 May.
It has analysed savings data from Moneyfacts and put Barclays Bank in joint-last when looking at how rates have changed in the last three years. Its Everyday Saver account paid an average of 0.1% between January 2020 and March 2023.
It also said the Easy Saver from Lloyds had the same rate and the bank’s cash ISA Saver averaged 0.13% over this period. Nationwide and Danske Bank also paid 0.08% on average for their instant-access ISAs.
Other big banks named by Which? include Halifax, and its five-year savings account averaged 0.57%, and Royal Bank of Scotland which came second-last for one-year fixed ISA accounts with an average of 0.62%.
Challenger banks dominate the top of the tables
It has largely been challenger banks that have remained at the top of the savings tables and recently it was Isbank that breached the 5% interest mark for the first time since 2009 with its one-year savings account. Meanwhile, on Friday, SmartSave has launched a 1 Year Fixed Rate Saver paying 5.07% AER/Gross.
The group said they beat the high street banks when it comes to interest rates in all areas, apart from five-year fixed-rate ISAs, which no bank offered in the period it analysed.
For instant-access savings, challenger banks paid an average rate of 0.57% compared to 0.42% from building societies and 0.16% from the high street banks.
Top of the group’s tables for one-year fixed-rate savings was Brown Shipley, which paid an average of 2.71% and for its instant-access savings account, the rate averaged 1.32%.
Castle Trust Bank’s one-year fixed-rate ISA averaged 1.92% and its five-year fixed-rate ISA averaged 2.26%. Secure Trust’s one-year ISA averaged 1.88% and its five-year ISA paid an average of 2.37%.
Which? said levels of satisfaction are typically much higher with challenger banks and noted that even though a saver may not have heard of a bank before, they will still be protected under the financial services compensation scheme if they’ve been granted a UK banking licence.
‘High street banks are shortchanging customers’
Jenny Ross, editor of Which? Money, said: “With millions of consumers still feeling the impact of an unrelenting cost-of-living crisis, it’s become even more important to get better returns on savings accounts. Yet, our research shows that established high street banks are shortchanging customers by potentially hundreds of pounds a year.
“If the FCA’s Consumer Duty is worth the paper it’s written on, the regulator will clamp down heavily on firms offering unjustifiable savings rates.
“Our advice is simple: if you’re not satisfied with the rates you’re currently receiving, now’s the time to switch.”