If you do one bit of admin today, make it switching your savings account.
I’m someone who’s never been particularly literate when it comes to money. For a long time, my idea of being financially responsible meant hoping that someone else’s HelloFresh box magically appeared on my doorstep instead of theirs.
I’ve kept all of my money in the same savings account since I was 15, and never once questioned whether or not it was the ‘wrong’ thing to do.
But, as it turns out, switching savings accounts might be one of the easiest ways to make a smart money decision. So, to find out more, Metro spoke with two personal finance experts to get their takes.
Why are people not switching their savings account?
Moneyfacts, a platform that compiles data to compare financial services, surveyed consumers to understand their savings habits better. And what they found spoke volumes.
The average consumer saves around 11% of their earnings. However, almost half of all savers could be missing out on substantial returns — with almost one in four of respondents admitting to never having switched savings accounts.
A futher 23% said they switch accounts less than every couple of years.
Rachel Springall, a personal finance advisor with over 20 years of experience, told Metro: ‘Trust is a big part of building a savings pot, so many do not want to risk their hard-earned cash and feel more comfortable staying with their existing bank. There is also an argument that, due to years of low interest rates and high inflation, savers may feel it’s not worth switching their pots, but that’s not true.’
Rachel goes on to say that challenger banks (aka newer tech-driven banks like Monzo and Revolut) and building societies often offer some of the ‘best returns on the savings market,’ but interestingly, so many people continue to keep their money ‘with a high street bank or even in a current account that earns little to no interest.’
She continues: ‘Switching doesn’t take much effort, and it’s important to get into the habit of earning a rate that can outpace the eroding effect of inflation.’
As someone who will happily put off life admin until the very last second, I can definitely relate to people who’ve found themselves slacking in this department.
Metro also spoke with James Blower, the founder of Savings Guru: ‘I think the kind of industry term is called inertia rather than laziness. But I think probably laziness is a bit harsh. I think it’s probably a little bit of fear. It’s fear that it’s going to take a lot longer — that it’s going to be a hassle.’
James continues: ‘Lots of people tend to actually save with their current account provider. Statistics show that we think it’s in a region of something like 60% to 70% of people actually save with the current account provider that they’re there with.’
In reality, switching to a new savings account it incredibly straight-forward. James, noting how electronic footprints have now made online banking totally seamless, joked that during the length of time we’d been chatting I could have opened up two different savings accounts already.
‘Typically,’ he added ‘with most banks, 92% to 93% of people who apply for a savings account will go straight through without any referral.’
What are the benefits of switching your savings account?
For a lot of people, the reason they might not have switched their account might simply be because they’re unaware of the potential incentives.
And while there might not be massive profits to be gained, James shares that if you look at big high street banks, an easy access account is going to be paying you 1% to 2% on that. The best rates in the market are going to be paying you 4.5%.
‘Now that’s quite a lot of difference, even on £1,000 – that could be £35 or £40 difference. So, if you start to multiply that, there can be quite a significant jump.’
On current accounts, James notes, the numbers can be even greater — with both the switch and joining benefits being really high.
James recommends ‘reviewing a rate every six months or so at the bare minimum and switching if they can earn a better return elsewhere.’
He adds: ‘We’ve had a few base rate cuts over the past year, so it’s wise to review rates around a month after that too!’
What are the best savings accounts to use?
According to Rachel, there are a couple of options to consider if you’re thinking about switching savings accounts.
‘If you’re saving an emergency pot, then an easy access account is ideal as it offers complete flexibility, and there are also easy access cash ISAs to consider for those who haven’t used up their annual ISA allowance yet.’
Totally new to ISAs (which stands for Individual Savings Accounts, by the way). Don’t worry, Metro’s absolute beginner’s guide will get you sorted.
Rachel adds: ‘Those saving for their first home could open a Lifetime ISA, as the Government will boost the deposit by 25%, but savers must check the terms and conditions before they open one.’
James mentions that banks such as Chase offer interesting schemes where you can almost ‘try before you buy.’
You don’t have to switch officially, you can just open an account, send some money over and play around with it — see if the benefits appeal to you.
It’s never too late to start a savings account
‘You can’t blame savers for feeling apathetic,’ Rachel shares, ‘but it’s never too late to start saving little and often to build a nest egg. There are even apps available designed to automate the savings habit, by taking deposits, and it’s easy to check in on the growing pot each week.’
According to recent data, one in six (16%) UK adults have no savings. Moreover, experts suggest that adults should have saved £37,430 by their 30th birthday, but, on average, those aged 25-34 only have £9,357 saved.
That being said, there are a lot of young savers on social media spreading the word and helping people less financially literate get to grips with different kinds of accounts.
If you haven’t yet opened a savings account yourself, take this as a sign. Aside from the fact it promotes good ‘habit forming,’ it could also massively save your skin in a time of need.
Savings accounts play a critical role in making sure ‘shock bills’ don’t spiral out of control, James notes.
He says: ‘If you don’t have an emergency stash, you might end up going to a credit card or going and getting a short term loan at 39.9% and put it on their overdraft, they’ll think they’ll clear it but they never do and then something that should have cost a few hundred pounds, ends up costing £1,500 because they end up paying a certain interest for a long period of time to finally get it right.’
He adds: ‘We’re all more optimistic about how we can deal with these problems than, in fact, the reality usually is.’
If you’re officially feeling tempted, Rachel notes that’one of the most popular savings accounts for putting some cash away every month is a regular savings account, these boast high returns of interest on each deposit and encourage the savings habit.’
