Brits’ loyalty to their banking and saving institutions could be costing them a staggering £1.6 billion in missed interest every year, according to new research from Hargreaves Lansdown. The study reveals that billions of pounds are currently languishing in accounts that pay little to no interest, with most savers doing nothing about it.
So, why are many people hesitant to change their accounts or switch banks in order to get a better deal? And as a saver, how can you make savings work harder for you? Let’s find out.
Banking loyalty: what does the research show?
When it comes to things like car insurance and home utilities, most of us are happy to shop around and switch to better deals whenever we can. But when it comes to saving accounts, the story is very different.
Hargreaves Lansdown conducted a study of Brits’ savings habits and attitudes and came up with some rather interesting findings:
- There is currently £246.5 billion languishing in accounts paying no interest at all. Brits could be missing out on over £1.6 billion a year as a result.
- Half of us haven’t switched savings accounts in the past five years. More than a third of us (37%) have never made a switch at all.
- The most cited reasons for not switching are rates being too low to bother with (42%), trusting a bank and therefore not wanting to leave (24%), and thinking a switch is too much hassle (17%).
How can Brits make their savings work harder?
Commenting on these findings, Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Our loyalty to our banks, and to savings accounts paying miserable rates of interest, is costing us billions of pounds.
“Even if we just switched the money collecting dust in accounts paying no interest at all, we could make £1.6 billion in interest. And if we switched those paying rock bottom rates in high street accounts, we could save billions more.”
Are you one of the many savers who have money in a savings account that’s giving very little in the way of returns? If so, Coles has three tips to help you make your savings work harder.
1. Consider fixed-rate accounts
Coles says that the gap between the interest available on easy access accounts and fixed-rate accounts is starting to open up. The most competitive account fixed for a year now pays more than twice the interest offered by the best easy access account.
Savers who have no immediate need for their money should consider locking it up for some time. This could potentially increase their savings returns.
2. Trust smaller, newer and less-known banking institutions
While it’s easier to feel more comfortable leaving your money with high street or well-known banks, you may be missing out on substantial returns by not opting for smaller, newer banks that offer much better rates.
These newer banks are subject to the same regulations and rules as high street banks. So, if anything goes wrong, the Financial Services Compensation Scheme (FSCS) will guarantee the first £85,000 of your savings.
3. Simplify the switching process by using an online savings and banking platform
Online cash savings platforms such as Active Savings can help to reduce the stress and hassle that many people associate with switching accounts. Instead of opening multiple accounts with different banks, you can open one account with one application and then move your money between accounts with different banks with the click of a button.
Where else can you put your savings?
When it comes to where you can build your savings, you aren’t just limited to banking institutions.
Though riskier than keeping cash in a savings account, investing in stocks has the potential to offer much better returns. This can help you reach your longer-term goals more quickly.
When investing in the stock market, consider using a stocks and shares ISA. This will help shield your investment returns from tax.
If you don’t want to deal with the hassle of picking stocks yourself, you could opt for an investing solutions provider to pick investments and manage them for you. This is a particularly good option if you are new to the world of investing.
If you are saving for a home or retirement, consider redirecting some of your savings to a Lifetime ISA.
A Lifetime ISA is a financial product available to people aged between 18 and 39 that allows you to save up to £4,000 each year. The government then adds a 25% bonus to your savings (up to £1,000) to use towards buying your first home or retirement.
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