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Savers miss out on £7.4bn by not switching accounts

Rebecca Goodman
Written By:
Rebecca Goodman
Posted:
Updated:
17/10/2022

Brits are missing out on £7.4bn in interest payments by keeping £267.8bn in accounts that pay no interest, new data has revealed.

Half of us haven’t switched a savings account in the past five years and 35% have never switched their savings account. 

Meanwhile, 58% of those asked by Hargreaves Lansdown said they had no plans to switch their savings provider in the next year.

But following the Bank of England’s decision to increase interest rates, a raft of savings providers have upped the interest they pay.

The most common reason savers don’t switch their money, given by 32% of the 2,000 asked, is that interest rates are too low, and 26% said they didn’t switch because they wanted to stay with their bank which they trusted.

Just under one in five (18%), said they hadn’t switched because it was too much hassle. 

Women are less likely to have switched than men and 40% said they had never switched compared with 30% of men. Men also said they were more prepared to switch accounts in the future, with 48% saying they would switch compared with 36% of women.

But in the middle of a cost-of-living crisis, with inflation soaring, switching to an account that pays more interest could be an easy way to offset rising prices.

No account beats the current rate of inflation, but interest rates on savings accounts have risen significantly in the last few weeks.

Savings rates top 5%

The investment company calculated the missing interest payments by comparing money earning no interest to money in an account paying 2.75%. The figure of £267.8bn is from the Bank of England’s data.

But it’s now possible to open an account paying more than 5%, which is the highest rate seen for a decade.

Most of the highest-paying accounts come from challenger banks, such as Atom Bank, Tandem Bank and Smart Save.

To achieve 5% interest, you’ll have to lock your money away for at least five years.

Yet rates have also increased on several other accounts, which only require you to lock money away for one or two years. Easy-access accounts have also improved: Chase, for example, increase rates on its easy-access account to 2.1% last week.

However, it is expected that the Bank of England will increase interest rates further, and at this point, savings providers may push rates up again.

Even with rising rates, the numbers of savers switching are still low. In 2020, 60% said they had no plans to switch, this fell to 59% in 2021 and 58% in 2022.

Rise of the challenger banks

Loyalty to a high street bank was the second most common reason for not switching bank accounts. But the majority of market-leading accounts come from challenger banks.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Save your loyalty for your loved ones: your bank doesn’t deserve it. 

“Sticking with a high street giant despite disappointing savings accounts paying miserable rates of interest, is costing us billions of pounds. 

“Even if we just switched the money collecting dust in accounts paying no interest at all we could make £7.4 billion in interest, and if we switched those paying rock bottom rates in high street accounts, we could make billions more.”

Challengers, along with the high-street banks, are also protected by the Financial Services Compensation Scheme, which protects up to £85,000 if something goes wrong.