Got savings? Check now to see if your bank is taking you for a ride

Last Thursday the Bank of England hiked its base rate for the eleventh consecutive time. Because of these continued rate hikes, savings rates have been on an upward trajectory for the best part of a year now. Sadly, however, not all banks are happy to share the spoils with their customers. If you haven’t checked the interest rate on your cash for a while, then there’s a chance your bank is taking you for a ride.

In this article we’re going to explain why now’s a great time to turn your back on pitiful savings rates. Plus, we’ll also explain why some ‘headline’ deals on regular savings accounts may not feel quite as generous as they appear.

What is happening with savings rates?

The Bank of England’s base rate has a massive impact on savings rates. When the base rate is very low, as has been the case in recent years, banks can offer derisory interest rates on their savings accounts. This is because they can borrow money from the Bank of England at a lower rate, so there isn’t a need for them to offer high interest rates to attract deposits.

Yet over the past year or so, we’ve seen the base rate soar as the Bank of England has tried to grapple with rising inflation.

Since April 2022, the Bank of England’s base rate has risen from 0.75% to 4.25%. This sharp rise is a big reason why savings rates have climbed so much over the past 12 months. Right now, it’s possible to earn up to 3.4% easy access. This compares to a top rate of just 1% a year ago.

Whether savings rates will continue rising remains to be seen, but there are certainly expectations the Bank of England has a few more rate rises up its sleeve.

Why do providers offer different savings rates?

While the Bank of England’s base rate has a massive impact on savings rates, it isn’t the only factor.

Competition also plays a huge part, which is why savings rates can differ a lot between providers. For example, if a new provider wishes to attract a large number of new customers in a short space of time, it may offer a headline-grabbing interest rate in order to be featured in the best-buy tables.

Similarly, if a provider has a need to raise capital, it may decide to increase its interest rates in order to charm savers. Once the desired capital has been raised, some providers will quickly move reduce their savings rates. This happens often in the fixed savings account market.

Another reason many savings providers offer low savings rates is simply because they know many customers won’t check their rate or are simply too lazy to move accounts. While we can’t list every provider currently giving savers a raw deal, there are a host of accounts out there still paying sub-1% rates.

When we checked, we discovered Lloyds, Halifax, Nationwide, Santander, TSB and Barclays all had at least one easy-access account paying less than 1%.

How can I check if my bank is giving me a fair deal?

While it probably isn't healthy to move your savings every time a new account tops the best-buy tables, given the abundance of deals out there, if you’re happy to go for easy-access access then you really shouldn’t accept anything less than 3% right now.

So, if your savings are earning less than this it’s worth taking action.

Right now, the top-easy access deal is from Chip which pays 3.4% AER variable. You can open this app-only account with just £1.

If that’s not for you, then Secure Trust Bank and Coventry Building Society pay a slightly lower 3.3% AER variable. The Secure Trust account can be opened with £1,000, while the minimum needed for Coventry is just £1. However, it’s worth knowing that with Coventry, you’re only allowed to withdraw money from the account on six occasions per year. Make more than this and you’ll pay a 50-days interest penalty on your seventh withdrawal onwards.

Are you looking for a fixed account? The fixed savings account market is a little different from easy access as the rates will depend on how long you’re willing to lock away cash. Also, you typically can’t move cash from a fixed account, so if you have a poor fixed rate deal, you’ll just have to sit tight until the end of the term unfortunately.

For more on fixed-savings accounts, plus information on how you can further boost the interest rate on your cash, take a look at our best savings accounts guide.

Why regular savings rates may not be as generous as they may seem.

You may have seen banks advertising impressive interest rates on regular savings accounts. For example, the market-leading First Direct regular savings account pays a headline-grabbing 7% (!). To open the account, however, you must have a First Direct current account. (Being a customer of a particular bank or building society is often a requirement to qualify for many regular savers.)

While putting money into a regular saver can be a good way to get you into the savings habit, it’s worth knowing that the headline rates on these accounts may be misleading for some. That’s because you can typically only earn the high rate of interest on small sums. Plus, many regular savings accounts only last for a year or so.

On First Direct’s account, for example, its 7% rate is fixed for just one year. Plus, you can only save up to £300 per month, so putting a lump sum into the account isn’t possible. Given these limitations, if you open this account and put £300 a month into it for a year, you'd end up with a total of £3,735, including £135 in interest. So, while £135 in interest is nothing to be sniffed at, you may have expected a fixed, 7% interest rate to have returned you a higher sum. Unfortunately, this is simply how regular savings accounts work.

So, in summary, when it comes to regular savings accounts, here's what to look out for:

Do you have a lot of savings? If you have a lump sum to save, then it’s probably best to open a different type of savings account, such as an easy-access, notice, or fixed account. For more on how these accounts work, take a look at our best savings accounts guide.