Interests rates “too low” to make switching savings worthwhile
Almost half (46 per cent) of people have no idea what interest they’re earning on their savings and 39 per cent of people have never switched their savings for a better rate, according to the Opinium survey of 2,000 people carried out on behalf of the investment platform.
Six in 10 (63 per cent) people say they don’t ever plan to switch their savings. Women and those aged 55 and over are most like to admit to this (68 per cent and 71 per cent respectively).
When asked why they don’t plan to switch, only one in five say it’s because they already have the best rate. The most common reason is that interest rates are too low to bother about (43 per cent).
Sarah Coles, personal finance analyst at Hargreaves Lansdown said: “Four out of five of us have never switched savings accounts. Not only does this mean we’re missing out on the best rates on the market, it’s also likely to mean we’re gradually getting less and less for our money.
“In an era of relatively low rates, you might be tempted into inaction by the thought of endless faff for relatively little rewards, but it doesn’t have to be this way. You can make hundreds of pounds more in a more competitive account, and switch in as little as five minutes. So there’s no reason at all to keep paying the loyalty penalty.”
Hargreaves Lansdown found there are two key reasons why savers don’t switch to better paying accounts: The faff factor and the loyalty penalty.
The faff factor
The most common reason people give is that ‘rates are too low to bother with’ (43 per cent), while 21 per cent say ‘it’s too much hassle’, and 7 per cent say ‘I don’t have the time’.
However, leaving money where it is won’t mean getting the same rate forever. The FCA found that rates tend to drop significantly after you’ve held an account for more than two years, so a low paying savings account can easily become a 0 per cent savings account.
Savers who know they’ll be leaving their money untouched for a year or more could switch to a fixed rate account. At the moment, you can make 2.42 per cent by fixing for three years.
Hargreaves Lansdown calculated that someone with £30,000 switching from an account paying 0.25 per cent to the best one-year fix would be £621 better off in a year.
The loyalty penalty
One in five (21 per cent) people say they haven’t switched savings accounts because they trust their bank.
But Hargreaves Lansdown warns that when we start to think of something as ‘our bank’, and assuming it’s the best place for all our money, we run the risk of paying the ‘loyalty penalty’. This means that, as an existing customer, you’ll receive a lower interest rate than the tempting rates offered to new customers.
Also just because a bank offers a good current account, it doesn’t mean it has a competitive savings account.
When you’re shopping around, you might be worried about moving your money to a newer online bank, but as long as it’s regulated by the Financial Conduct Authority (FCA) you’ll have the same protections as your high street bank, so the first £85,000 is protected by the Financial Services Compensation Scheme (FSCS).