All information is as of June 30th, 2021, unless otherwise stated.

The most popular place to save is at the same bank that we have our checking account with *. That usually means the high street giants.

We choose these banks because we trust them and it is convenient to have our savings alongside our other accounts.

But we pay a heavy price for this convenience. Big banks notoriously pay some of the lowest interest rates – as low as 0.01% interest on some instant access accounts. The same applies to fixed terms.

Even some accounts designed to reward loyal savers offer the same paltry return. Some offer a slightly higher price tag for accounts that can only be accessed online, but they still may not be competitive.

Comparison of the savings rates of the major banks

These tariffs are based on the lowest instant access and a one-year fixed term offered by each provider. The individual bank rates are taken from the respective websites. NatWest and Lloyds do not offer one-year terms. The average rates are from the Bank of England and the best rate on the market is from Moneyfacts. As of June 28, 2021.

With smaller banks, you can get up to 0.50% on your instant access savings – that’s 50 times more. And up to 1.10% with a one-year term – 11 times more than with some big banks.

Fixed terms usually don’t allow access to your funds until they expire.

The inflation problem

Inflation is the general rise in prices in the economy. At a time when it is rising, getting a good return on your cash is important. Otherwise, your hard-earned money will erode in value and future purchasing power.

The current inflation rate of 2.5% is already a challenge for savers. However, the Bank of England expects it to exceed 3% in the near future. It won’t take long to have a noticeable impact on the purchasing power of your money.

Instant access or limited-term savings accounts may not beat inflation right now. But there are big steps you can take to lessen the impact if you’re ready to look beyond the main drag.

Better prices and more choice – where do you get both

Convenience is one reason large banks can pay such low interest rates. You have existing relationships with millions of customers who like to have their savings with the same provider.

Smaller banks, often called “challenge banks”, offer better interest rates. They don’t have the same breadth of customer relationships, so they have to make headlines to make money. And they usually offer more choice than the big banks.

Take, for example, fixed terms of one year. The big banks usually have a limited supply, usually a year or two. Challenger banks, on the other hand, offer accounts from just six months to five years. This gives you more flexibility to manage your cash the way that is right for you.

But can I trust them?

Saving accounts industry awards tend to go to challenger banks rather than the high street. And some challenger banks are set up as special savings banks.

There are many hurdles banks must overcome in order to obtain a banking license or to be authorized by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). First of all, they have to prove the security and soundness of their company.

As long as they are authorized, they are covered by the Financial Services Compensation Scheme (FSCS). This protects up to £ 85,000 of your refundable deposits. It doesn’t differ depending on the size of the bank, so smaller banks get the same protection as larger high street banks. Note, however, that the £ 85,000 limit applies to any banking license. If your bank shares a license with another, the FSCS will only give you a total of £ 85,000 in protection for both of them.

Don’t wait for your bank to raise interest rates

If you’re sitting in an account with instant access with a major bank, don’t expect them to be hitting rates anytime soon. If interest rates rise, banks could open new accounts with a better interest rate instead of increasing the interest rate on existing accounts. Hence, you may need to take steps to increase your ROI.

Do you think it’s a pain that moves vendors?

Moving your savings to a new provider can feel very arduous and not worth the effort. But when you’re in a high street account, you’re putting your money at a higher risk of inflation. By moving, you could shelter your savings, reduce the impact, and potentially be better off.

An easy way to increase your ROI

Active Savings makes it easier to choose new savings products. With an online account you have access to many banks and building societies. Choose easy access and fixed terms ranging from a few months to five years.

High street banks offer instant access products that provide instant access to your money. Active Savings offers easily accessible products and withdrawals typically take one business day.

Once set up, it only takes a few clicks to open new products. No paperwork, no hassle. And you get a choice of great rates way above the big high street banks.

Like the Active Saving service, this article is not intended to provide personal advice.

More about active saving

* HL survey September 2020, 1,461 participants.

This website is published by Hargreaves Lansdown Asset Management Limited (company number 1896481) which is authorized and regulated by the Financial Conduct Authority with company number 115248

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorized and regulated by the Financial Conduct Authority (company reference number 915119). Hargreaves Lansdown Savings Limited is authorized by the Financial Conduct Authority under the Electronic Money Regulations 2011 with fixed reference 901007 for the issuance of electronic money.

Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

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