While MoneyWeek has been shouting about the best savings accounts and why you should act fast to grab some of the top rates available right now, yet the take up of these accounts has been slow as consumers continue to sit on cash earning little or no interest.
The City watchdog has now stepped forward to try to tackle the longstanding issue of savings inertia with a new £600,000 marketing campaign.
Higher interest rates have pushed the best savings rates to 15-year highs in recent months, but inertia remains and many savers are sticking with poor paying deals on cash offered by their bank.
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Research by the Financial Conduct Authority (FCA) in November 2023 found only 52% of savers said that they had switched, or were considering switching, their savings accounts.
Around two-thirds of those surveyed said they would consider switching.
The FCA warned in December that savers were still being ripped off by accounts paying rates of below 1%, with many savings deals offering more than 5% for an easy access deal and 7% for a regular saver.
The regulator is taking its own action now with a £600,000 marketing campaign that will run across radio, digital audio and social media aiming to prompt consumers to review their savings by highlighting how quickly they can find a better rate.
There is also a new page on the FCA website where savers can calculate how much they could earn in higher paying savings accounts.
“We know that people can be put off switching for a variety of reasons, but they could be making their money work harder,” says Sheldon Mills, executive director of consumers and competition at the FCA.
"There are some great rates out there and it could take as little as 5 minutes to find a better deal.”
Solving savings inertia
Savers had got used to poor rates in recent years but that has all changed since the Bank of England started raising interest rates and hundreds of deals now pay inflation-beating rates of interest.
The FCA has put pressure on banks and building societies to offer better deals as the base rate rose, particularly under Consumer Duty rules that order firms to offer customers better value.
There are signs of a more competitive market emerging.
There are now around 953 savings accounts that beat inflation, according to Moneyfacts.
But despite better deals being on offer, many savers still aren’t switching and are leaving money in poor paying accounts.
Time may also be running out as many top deals are being pulled amid expectations that interest rates will be cut later this year.
From July 2023 to December 2023, the amount held in bank and building society non-interest-bearing accounts reduced by £13 billion and in easy access accounts, which typically have lower interest rates, by £9 billion. Deposits held in fixed-term and notice accounts, which often come with higher rates of interest, increased by £24 billion.
The FCA is keen to encourage consumers to take more action but investment platform Hargreaves Lansdown suggests this is a hard task.
Its own research shows 37% of savers haven’t switched for the past five years – 27% have never switched their savings.
The research, carried out in October last year, found that half of people had no plans ever to switch.
“Anything the FCA can to persuade people to switch for a better savings deal has to be positive,” says Mark Hicks, head of Active Savings at Hargreaves Lansdown.
“However, it’s going to take a serious and sustained effort to shift people from the easy access accounts of high street banks, where an awful lot of cash is stuck.”
Hicks suggests people need to realise they can trust newer online banks, which often offer higher interest, because they all have to follow the rules set by the FCA and provide the same protection under the Financial Services Compensation Scheme.
“They need to know it doesn’t have to be a hassle to move – especially if they take advantage of a savings platform,” he adds.
“This campaign will hopefully go some way towards persuading people to take the first step towards switching.
"Once they’ve tried it, there’s every chance they’ll be pleasantly surprised at how straightforward and rewarding it is. We tend to find those who start small quickly follow with bigger lump sums. It’s just a case of taking the plunge and realising how much you have to gain.”
The amount you can earn from a savings account depends on the product and how much you are putting aside.
The best rate on an easy access account is 5.2% from Cahoot, where £1,000 would earn £52 interest after a year.
In comparison, the average rate on an easy access account is currently 2.03%, according to the Bank of England. A saver would earn just £20.3 from £1,000 of savings at this rate.
You can also earn 5.25% with a one-year fixed rate savings account from Atom Bank, pushing the interest earned on that £1,000 to £52.50
Alternatively, first direct offers a regular saver rate of 7% for existing customers. You can only contribute up to £300 a month though, so the maximum interest you could earn in a year would be £252.
It is important to look beyond just the rate when searching for a savings account.
You should consider any limits on contributions and withdrawals as well as factors such as customer service and how user-friendly the provider is if you want online or app access.
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