The myths that could be costing you thousands
Analysis by Hargreaves Lansdown shows just 8 per cent of people have most of their savings with a newer online bank and 45 per cent save with the same high street bank as their current account.
One in five people haven’t switched because they say they trust their bank.
However, this reluctance to try something different could be costing them thousands in lost interest.
If you put £30,000 of savings in the best online savings account over three years, you would be £1,130 better off than if you’d put your cash in the best branch account over the same time period, says Hargreaves Lansdown.
Myths about new, online banks are putting people off making the switch from the incumbents.
Here, Sarah Coles of HL, separates the truth from the lies.
Newer banks are more likely to fail and take your money with them
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. Of course any bank can fail – whether it’s an old high street stalwart or a newer online player, but the first £85,000 you have with any institution is guaranteed by the FSCS.
Going online means you’re more likely to be a victim of fraud
Fraud is on the rise, but increasingly fraudsters aren’t targeting the banks themselves – they’re targeting the customers. You don’t need to bank online; having an email address or phone number means they can target you. In fact you’re more likely to get a scam email claiming to be from a big bank than an online bank.
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. Make sure you’re also happy with the ways it offers for you to get in touch.
Interest rates are too low to bother switching
We’re in a low interest rate environment, but there are still huge differences between high street accounts paying 0.15% on an easy access account, and online banks offering almost ten times as much.
It’s easier just to stick with one bank
Switching has got far easier over the years. Nowadays you can compare accounts and open a new one online without leaving your sofa. If you use an online savings marketplace you can switch between accounts with different banks in a matter of minutes.
You need to be a tech expert to use one
Banks have invested a fortune in making sure this isn’t the case and that they offer apps with clear and intuitive functions. Nowadays saving and banking apps are designed to be used by humans rather than tech experts.
Sharia Banks aren’t for me
They’re often at the top of the best-buy charts, but they’re unfamiliar to many people, who are sceptical as to whether Islamic banking is right for them. Some people are also worried that they don’t agree with paying interest so they offer an expected profit rate, which sounds less reliable than interest. However, there are three 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.
- The money you put in these accounts is invested according to Sharia principles, which means it won’t be invested in tobacco, arms or alcohol. It’s one way to take an ethical approach to saving.