Double your savings rate by ditching high street banks

Struggling savers should move their money to smaller banks, which can offer twice the return of high street rivals, experts have warned.

Inflation has become a huge issue for cash savers, with the real value of their wealth being eroded. The consumer price index crept up to 2.5pc in June, the highest level in nearly three years. No savings deals offer interest rates that beat inflation, meaning all savers with conventional accounts have been losing money in real terms.

Despite inflation rising, some high street savings deals still offer as little as 0.01pc in interest. On a balance of £10,000, this would earn just £1 a year.

Inflation at its current rate would reduce purchasing power to £9,747 in one year – a £253 loss in real terms.

Rates are slowly improving, however, and savers now have more options than ever before, according to Moneyfacts, a savings analyst.

It said the best rates were consistently offered by smaller banks, known as “challenger banks”. Competition among these providers had pushed up average rates in recent weeks, with the average easy-access rate climbing 0.1 percentage point this month to 0.17pc and the average one-year fixedrate bond rising 0.4 percentage points to 0.52pc.

Cash savings with these firms would still be damaged by inflation, but the higher interest earned would offset some of the loss.

Rachel Springall, of Moneyfacts, said: “The rise of these banks in recent years has breathed life into the savings market and there are now more savings providers than ever before.”

Fixed- rate accounts in particular have improved in recent weeks, benefiting savers who are comfortable locking their savings away for years, Ms Springall added.

The best one- year fixed- rate account available is from Gatehouse Bank at 1.1pc, double the market average of 0.52pc. Over a year, on £10,000, Gatehouse’s deal would generate a return of around £110, compared with the £ 15 earned on Barclays’ 0.15pc one-year bond, for example, a typical high street savings account.

Cash Isas generally offer lower rates than traditional savings bonds but are more flexible. The best easy-access cash Isa currently available is from Leeds Building Society at 0.5pc.

However, locking in for longer could beat this. OakNorth Bank offers a one- year fixed- rate cash Isa with a return of 0.66pc, while Newcastle Building Society’s five-year cash Isa offers 1.25pc interest.

James Blower, founder of consultancy Savings Guru, said: “Any saver who has not been saving with a smaller new entrant has missed out on the chance to earn significantly more on their nest eggs.

“It isn’t just the rate, though: most of the new entrants are built on much more modern technology platforms than the incumbent banks, so their customer experience and service levels are often much better, which is borne out by scores on review websites.”