Why you need to take your savings out of high street banks
Aside from regular savings accounts, not a single standard account from a big high street bank pays enough interest at the moment to beat inflation, research shows.
Savers who do put their money into these accounts are in effect losing money in real terms as the cost of living outstrips what they earn on their savings.
Consumer price inflation (CPI) held steady at the government’s 2 per cent for the second consecutive month in June.
There are now 110 standard savings accounts that beat inflation, but they’re all from less-known providers, according to Hargreaves Lansdown.
In addition to abandoning the high street, savers will also have to lock their money away for at least a year to stop inflation eroding the value of their cash.
Sharia bank BLME sweeps the board, offering top rates across a range of fixed rate products. It pays 2.2 per cent on its one-year bond, 2.45 per cent on its two-year bond, 2.6 per cent on its three-year product, and 2.8 per cent on its five-year fix.
While easy access accounts are popular because of their flexibility, the best rate savers can get is 1.5 per cent from the likes of Cynergy Bank and Virgin Money. Some, however, pay as little as 0.15 per cent.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “You don’t need to take needless risks or change your approach entirely – just consider less well-known banks, fixed rate bonds, and Sharia banks.
“If you use an online savings marketplace it makes it far easier to set up a number of accounts, switch between banks and keep an eye on everything in one place.”
How Sharia banks work
These banks reflect Sharia beliefs that money shouldn’t be made from money – so no interest should be paid on savings.
Instead, savings money is pooled and invested in a number of ethical companies – excluding those involved in alcohol, tobacco, arms or gambling. Savers earn a share of the bank’s profits. That’s why instead of getting an interest rate you get an ‘expected profit rate’.
This isn’t like investing, however, because these accounts are regulated as savings products, so they have the same protections as other savings through the Financial Services Compensation Scheme (FSCS).
There is a possibility that part of the way through the fixed period, the bank concerned may feel it can’t deliver the expected rate, so will let you know.
At that point, you can take your money out with the profit you have earned so far (at the rate you expected when you started the account) – or you can agree to a lower profit rate. This has never happened so far but is a possibility.
The mechanics of the account and some of the terminology is different, but from a savers’ perspective, saving with a Sharia bank looks and feels exactly like saving with any other bank.