Savers lose out on up to £7bn in interest by sticking with big banks

Savers are losing out on up to £7 billion in interest rewards by sticking with the big banks.

While smaller banks and building societies have been tentatively raising rates, big banks continue to pay virtually no interest at all.

Yet money has been pouring into the latter as savers have put more money aside for an uncertain future.

They now need a £50,000 deposit to find an account with a High Street bank that won’t see their savings eroded by inflation, despite it hitting a four-year low last week.

Earlier this month, banking trade body UK Finance revealed that the amount in easy-access accounts soared by 6 per cent in the second quarter of the year, the biggest increase since its records began ten years ago.

In the first six months of this year, savers piled in a huge £55.9 billion.

The big banks – including NatWest, Lloyds, Barclays, Royal Bank of Scotland, HSBC, Halifax and Santander – hold a total of £726 billion of our savings in easy-access accounts. They pay interest at a rate that is barely above zero, at 0.01 per cent to loyal savers – or 10p a year on £1,000.

By switching to better deals at 0.75 per cent to 1 per cent, Britain’s savers as a whole can boost their interest by up to £7 billion.

Savers with the big banks are also losing the spending power of their money, even though inflation is now running at its lowest level for nearly five years.

Meanwhile, the rise in the cost of living is increasing at just 0.2 per cent, as measured by the Consumer Prices Index.

None of the big banks even get near to matching this low inflation rate – unless you have £50,000 in the NatWest Premium Account or open a new Digital Regular Saver. 

It cut the rate on its Premium account from 0.35 per cent to 0.2 per cent last month on sums between £50,000 and £1 million. On lesser amounts the rate is 0.01 per cent.

The new Digital Saver, open only to those with a current account with the bank, pays 3 per cent and gives easy access to your money. But you can only put in a maximum of £50 a month.

It is important you earn more than inflation on your money — if you don’t, it loses its value. With inflation at 0.2 per cent, you need to earn £20 interest a year on each £10,000 of savings. At 0.01 per cent, you earn just £1, so effectively lose £19 a year.

But data analyst Moneyfacts says there are 81 easy-access accounts on offer from other banks and building societies that beat the rate of inflation.

Rachel Springall, finance expert at Moneyfacts, says: ‘In my view, savers would be wise to look away from the High Street banks as they are paying next to nothing in interest. 

‘Challenger brands offer some of the best returns and are worth considering, even if they are not household names.’

Some big banks pay a marginally higher 0.05 per cent, but the rate only lasts for a year.

For example, Santander’s eSaver Issue 18 pays 0.05 per cent, but only for the first 12 months. After that, your money is transferred into its Everyday Saver account at 0.01 per cent.

In contrast, Principality BS has just upped the rate on its Web Saver account for new savers to 0.8 per cent while Yorkshire BS Internet Plus Saver 7 pays 0.95 per cent as long as you have £10,000 in the account. 

All give you easy access to your money with no withdrawal restrictions.

Your money – up to £85,000 – is covered by the Financial Services Compensation Scheme, so you won’t lose out if the bank or building society runs into trouble.

Savers looking to put money aside each month can earn 1 per cent on their future savings.

Virgin Money Regular E-Saver pays 1 per cent and lets you make withdrawals any time, but limits you to saving £250 a month.

Unlike the new NatWest Digital Regular Saver, the account is open to all and not just its existing current account holders. The Virgin account rate is fixed for a year while NatWest reserves the right to cut the rate at any time.

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