The hard part of maintaining household living standards is, of course, bringing in the bacon. After all, it is the income we earn that dictates what we can afford, and it’s thus understandable that we try and maximise what is brought in. But the thing is, it doesn’t really end at the point where this money hits your bank account. The fact of the matter is that, after doing all the hard work of actually earning your money, you want to make sure that your money then works for you (i.e., you benefit from the best possible interest rates).
In the low-interest environment we currently live in, that’s easier said than done. After all, returns on both cash ISAs and savings accounts have plummeted to shocking lows. Banks will undoubtedly point to record-low base rates set by the Bank of England. Still, the reality is that the returns they offer savers have declined disproportionately, meaning we’re getting ripped off. Perhaps it time to switch banks to make your money work harder for you?
Are we powerless?
The thing is, these derisory rates are, in particular, being offered by major banks, or the so-called big eight. For example, the average return among these within the realm of savings accounts has dropped to just 0.04 per cent, while the average from cash ISAs fares a little better at 0.15 per cent.
Concerning the former, it actually equates to a full percentage point less than top rates paid by newer banks. And yet still, we lump our money into these accounts offered by high-street behemoths – to the tune of £1.2 billion a month, in fact.
By being so obliging, we are allowing these greedy bankers to dictate terms. But it need not be this way. Because, since 2013, switching who you bank with has become much, much easier. It’s called the Current Account Switch Guarantee, and it means you can take advantage of the following:
- Guaranteed switch with 7 working days
- Choose the date you want the switch to take effect
- 13-month allowance on debits and credits in case anything goes wrong
- Full protection of funds when switching
What’s more, all you need to do is notify each bank, and then it’s up to them to do the legwork. It couldn’t be much simpler.
The other problem we face is that more and more banks are closing their branches or opening part time. BankOpening.co.uk can help you out there, you need never make another wasted journey again because you can check the opening times of all branches in the UK for all banks.
Inertia and inaction
Yet despite these new rules, we Brits just aren’t switching. In fact, fewer than a million a year are doing so, which is small fry when you consider over 70 million savings accounts held in the United Kingdom. A recent survey found that savers were also more reluctant to put their money into newer and/or smaller banks, even though the guarantee of the Financial Services Compensation Scheme (FSCS) still applies.
Unfortunately, it means there isn’t much competition in the savings market, and it allows the major banks to call the shots and get away with murder.
So, what to do?
Quite simply, the time to act is now. Inflation is on the rise, so money sitting idly in banks simply loses value in real terms. Despite the generally low-interest savings sector at present, there are still some deals out there to make switching worth your while. For example, some banks like First Direct offer £100 in cash just for switching. Elsewhere, you can find short term, high-interest deals for a fixed period of time. Or, by looking beyond the mainstream, you can find better return rates – either within banking or beyond.
In terms of alternatives, you could look a bit further up the risk spectrum to peer-to-peer lending, whereby you lend your money directly to borrowers in need of a loan who are vetted by an online platform. This option carries risk, and there is no FSCS cover. But track records among prime platforms are pretty good in protecting your money, and they are FCA regulated. Added to that, with returns of up to 5 per cent and a new form of ISA to shield your returns from tax, the gains make it an appealing option.
Whatever you do, don’t sit still and accept the cards that are dealt with you. With not much effort, we consumers can make a big difference as a collective and turn the tables on those who think they can take us for granted.