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The five online savings myths that are costing you over £600 a year

Nick Cheek
Written By:
Nick Cheek

By not using online savings accounts and relying on big-name high street banks, customers could be missing out on as much as £628 a year in interest. Here are the five myths that are stopping your savings from soaring.

A new survey from Hargreaves Lansdown has found that almost two thirds of people have their savings with a big high street bank (64%), and half of people (50%) hold them with the same bank as their current account.

Of the 2,000 people surveyed in September, only 1 in 8 have their money in an online bank or with an online savings platform (13%). This is despite the fact that a large proportion of people know they could get a better rate of interest online – 36% respondents use comparison sites and can see online savings accounts are usually at the top of the best-buy lists.

You could be £628 better off with an online savings account

Overall, the survey found that if you have £30,000 in savings, putting it in the best easy access savings account would leave you £628 a year better off than putting it in the best branch account from a high street giant.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “We live half our lives online, [so] it’s odd that when it comes to saving, we’re reluctant to move off the high street and into a more rewarding world online.

“We’re put off by common misunderstandings about online savings (see the five most common myths below), so it’s worth getting to grips with the reality.”

Below are the five expensive most common online saving myths, according to Hargreaves Lansdown.

The five big online savings myths

  1. Interest rates are too low to bother switching

When asked people why they didn’t switch savings account, almost a third of people (32%) said rates were too low to bother switching. This may have felt true in recent years, but [now] the best easy access branch account on the high street offers just 0.75%, while the best online is almost four times as much (2.85%).

  1. It’s easier to stay with the same bank as your current account

When asked the most important aspect about picking a savings account, ease topped the list, with 26% of people saying it was most important to be able to access their cash without a hassle, and 23% saying it was most important to be able to open an account easily.

But the pendulum has swung on ease. Now so many branches are closing down, it’s much harder to do this in person. It means people are accessing their cash more online. Once you’ve got to grips with this, it doesn’t matter where your savings are – it’s just as easy to access.

  1. High street banks are safer

Another important aspect for people is finding a bank they can trust, and it’s easier to trust the familiar, according to Hargreaves Lansdown. However, banks have to jump through all sorts of stringent hoops before they’re granted a banking licence in the UK. They need sound financing, a strong business plan and the right people in charge – and online banks are no exception. They also have the same guarantees in place, so the first £85,000 you have with any institution is guaranteed by the FSCS.

  1. You can’t get good customer service without a branch

Customer service doesn’t need a branch. Service awards regularly go to banks with online or telephone contact only. In fact, they may well be easier to get hold of at a time that suits you. Having said that, online banks aren’t guaranteed to have great service either, so check out reviews and ask friends and family about their experiences.

  1. Sharia Banks aren’t for me

They’re often at the top [or near the top] of the best-buy charts – including Al Rayan – but they’re unfamiliar to many people, who are sceptical as to whether Islamic banking is right for them. Some people are worried that they offer an expected profit rate, rather than interest, which sounds less reliable. However, there are two things to bear in mind:

  • If the bank isn’t going to make the expected profit rate, you’ll have the chance to take your money out immediately with the rate you were expecting.
  • If something goes wrong with the bank itself, the first £85,000 of your savings is protected in exactly the same way as any other bank, through the FSCS.