High street banks found to offer worse interest rates as new 4.75% account hits market

Some of the biggest high street banks are offering lower interest rates to customers than so-called challenger banks, along with demanding more from their clients in return, a new study shows.

Comparison site Finder analysed a total of 85 easy access savings accounts, spread across 33 different providers. The analysis included big-name high street banks including Bank of Scotland, Barclays, Halifax, HSBC, Lloyds Bank, Royal Bank of Scotland, Santander, The Co-op Bank, TSB and Virgin Money, plus Nationwide as a building society.

While the vast majority (85 per cent) of them had at least one requirement for customers to access it – such as opening a current account to get to the savings account – there was a clear skew towards more demands from high street banks, with fewer demands (and better rates) from challenger banks.

Most importantly for consumers as inflation hits the 4 per cent level, the average interest rate available with high street banks was just 2.04 per cent.

Holding cash earning little or no interest means peoples’ real spending power is eroded by inflation at higher levels. Experts recommend a quick online search to find better interest rates than your current provider.

Finder’s analysis showed challenger banks offering a better average interest rate of 3.54 per cent, but even better returns are possible with several still offering in excess of 4 per cent.

It’s also worth noting that these are for easy access accounts; if you are looking to save regularly, then several banks still offer regular savers with around a 7 per cent interest rate.

Finder’s analysis showed that having an extra account open was the most popular requirement for high street banks, with 54 per cent of them requiring at least one other account to be open before clients could access their savings account.

That dropped to 17 per cent for challenger banks, who instead favoured bonus periods (39 per cent) or having a minimum balance (29 per cent).

One further stipulation providing a contrast between big banks and challengers was that of tiered interest rates, which essentially gives a different reward to savers depending on how much they have deposited. More than a third (39 per cent) of big banks did this, compared to none of the challengers.

Kate Steere, money expert at Finder, said: “The fact that 85 per cent of so-called easy access deals are restricted is simply ridiculous, when all savers want is a decent return on a pot that they can get to when they need it. You might forgive market-leading deals for making customers jump through hoops to get the top rate, but having strings attached is a far too common occurrence for lower interest accounts as well.

“This is especially true of the high street banks, where some customers will have trusted their money for decades, but which actually offer lower average rates and more confusing terms.”

On Tuesday, Zopa released a new market-beating rate for their savings account, offering 4.75 per cent in total, including a boosted rate.

In line with the aforementioned customer requirements, Zopa say you must hold a current account with them and deposit a minimum of £500 into that current account each month to receive the boosted rate. Without it, the rate is 3.25 per cent.

The current account itself – called the Biscuit account – is also unusual in that it offers 2 per cent interest on funds in it, compared to most others not doing so with this type of account.

There is no requirement to leave the monthly £500 deposit in the Biscuit account – it can be spent, saved or withdrawn afterwards.

Alastair Douglas, TotallyMoney CEO said: “The new Zopa easy access savings account comes with an inflation-beating rate, and unlike other so-called ‘easy access’ accounts, this one comes with no withdrawal restrictions.

“If you’re sitting on savings and haven’t moved your money for a while, then it’s more than likely you’ll not be on the best rate. And with inflation still high, your cash could effectively be losing its value. Just remember that loyalty doesn’t pay, but being savvy with your savings can.”