Savers urged to ditch banks for building societies
Building societies pay savers much better interest rates than banks, according to analysis by a rate monitoring firm.
More than two-thirds of building society savings accounts pay a higher interest rate than the base rate, compared to less than half of accounts held with banks, research by Savings Champion found.
Despite it being almost a year since the Bank of England base rate rose to 0.75 per cent, this is still far lower than the level of return that savers would expect their savings accounts to beat.
More than two-thirds of building society accounts (68 per cent) pay a higher rate than the base rate, compared to less than half of accounts from banks (49 per cent).
The savings monitoring service pointed out that it’s not just bank’s older accounts, which are closed to new business, that are offering poor rates, but new ones too.
Over the past six years, the average rate for an on-sale variable account from a bank has dropped by more than double the average for on-sale building society accounts – a 21.5 per cent drop, as opposed to just 9 per cent.
Off-sale or older accounts have still suffered badly with both groups. But once again banks have cut their off-sale accounts by more – a drop of 34 per cent over the past six years compared to 31 per cent at building societies.
For example, savers with funds languishing in the HSBC Flexible Saver are currently earning just 0.15 per cent or £75 on a balance of £50,000. If that cash was moved to one of the best buy easy access accounts paying 1.50 per cent, they could be earning 10 times more interest, £750 gross per year.
Looking more closely at the past 12 months, the overall average variable interest rate paid by building societies stood at 1.05 per cent, compared to 0.83 per cent from the banks.
Anna Bowes, co-founder of Savings Champion, said: “When it comes to the average rates, there is a clear disparity between the two groups and it demonstrates that building societies on the whole pay higher rates and are therefore treating savers more fairly than banks”.
“Of course, there are plenty of examples of providers within both groups that buck the overall trend, so savers should certainly still be looking at the best possible options on the market before taking action.
“The most obvious example of this are the challenger banks, which are clearly an exception to the rule, as many of these providers are actively competing in the savings market and in many cases dominating the best buy tables.
“The same cannot be said of the big high street banks, which are dragging the average rates down by paying some of the worst rates on the market. We know that significant sums are still held with the high street banks and these figures should be another wake-up call for savers to switch to a better deal.”