Take an interest in your rates
FIVE REASONS WE DON’T SWITCH ON TO BETTER RATES
ALMOST half of savers have no idea what interest rate they are earning, new research reveals.
Almost two-thirds say they don’t ever plan to switch their savings to try to get the best rate.
The reason for this reluctance is that the current rates on offer are so low that it’s not worth the faff of going through the switching process.
Research from investment firm Hargreaves Lansdown found that women aged 35 to 54 are the most likely to not know their savings interest rate, and women aged 55 are the least likely to move their funds to get a better rate elsewhere.
Sarah Coles, personal finance analyst at investment firm Hargreaves Lansdown, said: “Four out of five of us have never switched savings accounts.
“Not only does this mean we’re missing out on the best rates on the market, it’s also likely to mean we’re gradually getting less and less for our money.
“In an era of relatively low rates, you might be tempted into inaction by the thought of endless faff for relatively little reward, but it doesn’t have to be this way.
“You can make hundreds of pounds extra in a more competitive account, and you can switch in as little as five minutes.”
1 The faff factor
WHY: We think rates are too low to be worth the bother, it’s too much hassle and we don’t have the time.
WHAT: Leaving money where it is won’t mean getting the same rate for ever. The Financial Conduct Authority found that rates tend to drop significantly after you’ve held cash in a savings account for more than two years (unless it’s a fixed-rate bond). A lot of savings accounts come with a rate that includes a bonus that ends after 12 months. So lowpaying accounts can easily become virtually 0% savings accounts.
Hundreds of thousands of savers have hard-earned cash in savings accounts paying an insulting 0.01%. Switching doesn’t have to be complex or time-consuming. You can search and switch in 30 minutes.
SARAH’S TIP: If you know you’ll be leaving the money there for a year or more, you could switch to a fixed-rate account. At the moment you can get 2.42% by fixing for three years.
2 The loyalty penalty
WHY: One in five of us hasn’t switched because we trust our bank.
WHAT: When we start to think of “our bank” assuming it’s the best place for all our money, we run the risk of paying the loyalty penalty. Just because a bank offers a good current account, doesn’t mean it has a competitive savings account.
SARAH’S TIP: When you are comparing rates on savings accounts, you might be worried about moving to a newer or online-only account. But as long as it is regulated by the Financial Conduct Authority, you’ll have the same protections as high street banks. So the first £85,000 is protected by the Financial Services Compensation Scheme.
3 The indifference difference
WHY: Almost one in 10 people says they’re not interested in the interest rate they are earning.
WHAT: This may well be the case for very short-term savings, where you just want the money somewhere handy. But after a while inflation will start to take its toll, so very low rates will eat away at the value of your savings.
SARAH’S TIP: If you’re going to hold cash for more than a few weeks, the interest rate on the account should matter to you.
4 Baffled into inaction
WHY: Almost one in 10 of us doesn’t know what we are looking for.
WHAT: If you don’t have a goal for your savings, there is nothing to aim towards and you’ll just meander along. The best way to approach savings is to aim to have three pots. Start by building up three to six months’ worth of your regular bills and expenses in an easy-access account as a financial safety net. Then it’s good to have a medium-term savings pot for a special event or house deposit.
The third pot is for longerterm savings, maybe ISAs to help boost your finances in your older age and ensure you have a comfortable retirement. The latter two need to be in fixed-rate products.
SARAH’S TIP: Once you know the kinds of accounts you want, you can shop around for the best possible rates and terms to suit your needs.
5 Interest rate complacency
WHY: A fifth of savers don’t switch because they already have the best available rate.
WHAT: It doesn’t mean you should stay put for ever. Make a note of when fixed rates expire so you can switch immediately.
SARAH’S TIP: It’s also worth checking easy-access accounts at least once a year so you can switch to somewhere more rewarding when they’re no longer competitive.
After a while inflation will start to take its toll, so very low rates will eat away at your savings