Britons’ finances are looking more arid than ever before. Not only are homeowners facing the worst mortgage squeeze since the 1990s housing crash, their savings are not benefiting from higher interest rates either.
Banks, keen to replenish their coffers after the low margins and competitive mortgage market of the quantitative easing era, are failing to pass on attractive rates to savers.
This means that the gap between the amount of interest charged on what we borrow compared with the amount of interest applied on what we save is getting ever wider.
Shop around
At a time like this it pays to shop around for the best deal.
But Emma Wall, head of savings, Hargreaves Lansdown, said that instead of doing so Britons are letting themselves down with their brand loyalty.
Wall said: “People are incredibly loyal to the big names on the high street. Most hold their savings with whoever their current account is with, and our survey last year found that more than half (58%) don’t ever plan to move their money. However, this is costing us dear, because if you’re earning 0.85% with a high street giant, you could make more than six times as much interest today.”
Smaller may be better
If you want to increase the return on your savings you might want to think about choosing an account with one of the smaller, online banks and building societies as they usually have better rates than the high street giants, Wall advised.
Although these aren’t as well known they are regulated in the same way as the big boys on the high street and customers have the same protections, with the first £85,000 protected by the financial services compensation scheme.
Don’t automatically assume you have to use easy access accounts for your savings either, Wall said. They are good for emergency pots of money but if you have enough for up to 6 months of essential costs you might want to park your money somewhere that gets you more interest.
Wall noted that the best rates are currently on shorter-term fixes, but if you don’t need the money for a longer period, you can split it between different accounts, so if rates are much lower when a 1-year or 2-year account matures, you’re still getting a strong rate from your longer-term fixed deals
Wall added: “If you have more than one savings account, it’s easier to manage through an online cash savings platform, which lets you see everything in one place and switch easily. The fact that some of these platforms are run by large companies with a long track record in the industry adds a level of familiarity that we know is very valuable to savers.”
Those lucky enough to have some spare change at the moment can also look at parking their money in different financial products, like premium bonds. And with their prize rates going up and the odds of winning looking more favourable, there’s every reason to do so.
