This is why you might not want to leave your savings in a high street bank account
For this week’s guide, Anna Bowes, savings expert from The Private Office, explains why you might not want to leave your savings in a high street easy access account.
Easy access accounts can be handy for those who want to put some money aside but need to dip into it at times.
But many of them come with several terms and conditions that can mean you end up earning less than expected or not having the access you wanted.
Many people leave their spare cash in savings account set up by their current account provider, and Bowes says this can see them getting the lowest interest rates on the market.
And, with the Bank of England making its latest base rate decision tomorrow (with a cut to 4.5% anticipated), now could be time to make the most of your cash.
Analysis by Yorkshire Building Society and data consultancy CACI found nearly £400bn is languishing in UK current and savings accounts earning 1% interest or less.
Bowes gave the example of Lloyds, which is paying 1.15% on balances of up to £25,000 – this is a tiered account so the more you save the more you can earn, but the top rate is just 1.6% and that is only on balances of more than £100,000.
“This is far less than the base rate – and even more importantly, it’s less than inflation. So your returns will not be keeping up with the rising cost of living,” she explains.
“Some of the high street banks have better paying easy access accounts that are available to those that hold their current accounts, but these better rates are paid on smaller balances and you may need to pay a current account fee.”
For example Santander is paying 6% AER on balances of up to £4,000 on its Edge Saver Account (Issue 2).
But this rate includes a 12-month bonus of 1.50%, meaning it will drop after that period, and it requires you to hold an Edge Saver Current account with a £3 per month fee.
Similarly, Barclays has a Rainy Day Saver paying 5.12% AER on balances of up to £5,000, but you need to pay a £5 a month fee to have access.
“It’s unlikely to be worth opening a current account simply to have access to these savings accounts, but if you already have one of these current accounts and they are good value for money, as they offer benefits such as cash back on some bills, then check if your provider has a decent savings account too,” Bowes adds.
“But, there are also plenty of simple savings accounts that are available that can add valuable pounds to your pocket – without changing the accessibility or requiring you to become a current account customer with them.”
Here are some of the rates being offered by high street banks on £10,000…
And £50,000…
But, there are a number of alternatives not on the high street, that are paying much higher rates…
Bowes says: “For those with smaller balances, Cahoot’s Sunny Day Saver is paying 4.75% AER but only on balances of up to £3,000. This account could add an extra £108 a year before any tax is deducted for someone who currently has money in the Lloyds Bank Easy Saver account.
“Close Brothers Savings has an Easy Access Account (Issue 5) which is paying 4.70% AER – although the minimum is £10,000 and the account needs to be opened online.
“On a balance of £10,000 this would mean earning over £355 more a year – and still have immediate unlimited access to your money. ”
She adds: “For those who might not need immediate access all of the time, there are some accounts paying a little more, but you may need to jump through a number of hoops to earn these top rates.
“It’s a sad truth that you generally will not be paid for loyalty by your high street bank. But it can be quick and easy to earn much more interest if you are prepared to use a lesser-known provider.
“So check what you are currently earning and switch if you can make more elsewhere. With another base rate decision looming later this week, now’s the time to make the most of your cash.”
