Are Your Savings Working Hard Enough?

In an age where financial stability is a priority for many, the performance of our savings accounts has never been more critical. Recent data from the Bank of England has highlighted a startling figure: approximately £250 billion of the UK’s savings is sitting in deposit accounts that earn no interest.

Staying with the Familiar

Three-quarters of consumers with a savings account (75%) opt to hold their savings with their main current account provider. Historically, this has benefited larger firms, which hold significant market shares of personal current accounts.

The Rise of Challenger Banks

Recent trends have indicated that more consumers are utilising the Current Account Switch Service (Cass), resulting in a significant uptick in business for smaller, newer banks. The FCA’s recent report confirms this shift, showing that challenger banks now hold approximately 8% of personal current accounts, a substantial increase from 1% just five years ago.

Moving Money into Fixed-Term Accounts

Data has shown a significant movement of money since the start of 2023. Specifically, £52 billion has been shifted from easy access accounts, while £38 billion has been deposited into fixed-term or notice accounts across nine of the largest firms.

Interest Rates are Rising

For those with easy access accounts (which hold 60% of balances across nine of the largest firms), the average interest rate has risen dramatically from 0.07% in January 2022 to 1.25% in May 2023. Fixed-term and notice accounts have similarly experienced a surge in interest rates, rising from 0.3% to 2.47% during the same period.

Top Rates and Regulatory Updates

As of July 2023, the top easy-access rates have ranged from a promising 4% to 5%. It is important for consumers to understand that several factors influence these rates, including broader economic conditions and companies’ business models.

The Financial Conduct Authority (FCA) had previously initiated consultation on a “single easy access rate” (Sear) policy in January 2020, aimed at addressing concerns about potential loyalty penalties. However, the FCA has since pivoted, focusing on the new consumer duty that allows it to respond more flexibly to market developments.

Tips for Maximising Your Savings

1. Shop Around: Don’t settle for the savings account at your current bank if there are better options available. Explore challenger banks and other institutions.
2. Consider Fixed-Term Accounts: With higher interest rates, these accounts can offer a better yield on your savings, although they require you to lock in your money for a set period.
3. Stay Informed: Interest rates are dynamic. Regularly review the options and be prepared to switch if a better opportunity arises.
4. Consult a Financial Adviser: Professional advice can provide a tailored savings strategy based on your financial goals and circumstances.

Secure Your Financial Future Today

With significant changes in the banking landscape and the potential for your savings to work much harder, now is the time to act. Review your savings accounts, consider your options, and consult with a financial adviser to ensure your money is positioned for optimal growth.

FAQs

1. How often should I review my savings account?

It’s wise to review your savings account at least annually or whenever your financial situation changes significantly.

2. Are challenger banks safe?

Most challenger banks in the UK are FSCS protected, meaning that up to £85,000 of your money is safe even if the bank goes under.

3. What is the “single easy access rate” (Sear)?

The Sear was a proposed policy to ensure long-standing customers receive similar rates to new customers, aiming to encourage fair competition among providers.

For professional advice tailored to your personal circumstances, reach out to our team of experienced financial advisers.