Competition is warming up for savers searching online – but millions who bank in person are being left out in the cold.
Rates for cash deposits have nudged higher in recent weeks, largely thanks to internet-based providers.
But the landscape is frozen in time for those blindly trusting their local bank, where the value of their funds is being eroded by inflation considerably higher than interest earned.
Frozen out: The best deals are only available online
Most best-buy savings accounts on the market now – from easy access to fixed-rate bonds – are unavailable to people who want to open one face-to-face.
This allows high street banks to cling to ‘significant’ sums of customer money in poor-paying accounts opened long ago, according to the City regulator.
The Financial Conduct Authority says it is ‘concerned’ about how these loyal customers are being treated.
Anna Bowes, director of rates scrutineer Savings Champion, says: ‘Those who stick with their high street banks are being ripped off as these providers offer some of the worst rates available.’
This might help explain why British savers, who last year held cash balances worth a combined £1.3 trillion, earned interest equivalent to a paltry average of 0.35 per cent.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS
Analysis by Savings Champion shows a traditional saver banking via phone, post or in-branch would likely receive £180 a year less on average than someone using the internet.
This is based on typical cash savings of £45,000 for the over-65s.
In reality there are swathes of savers who do not even use phone-based or postal accounts and who only bank in person. They are receiving an even poorer deal.
This is because they are limited to whatever bank branches have survived in their local area.
For example, a customer saving in branch with HSBC via its ‘flexible saver’ account gets 0.05 per cent. By comparison an online saver can get a rate of 1.3 per cent with RCI Bank Freedom Savings Account. On a balance of £45,000 this is a difference of £563 over one year.
Those unwilling to bank online are at risk of falling behind in the hunt for better returns.
Charlotte Nelson, of comparison website Moneyfacts, says: ‘The options for those who refuse to save online are limited. They either have to trawl banks in their area, get a friend or family member to help or stick with their familiar bank which is unlikely to be the best choice.’
As well as banks offering a pittance to a captive audience, some trusted providers offer different rates for similar products purely because of how customers choose to transact. The Post Office, for example, pays 1.05 per cent to those opening its Online Saver, but a heavily reduced 0.75 per cent on Instant Saver which can be opened and managed in person.
On savings worth £45,000, that is a £135 penalty purely for walking through its branch doors rather than clicking through to its website. For a three-year fixed-rate bond, an online saver gets 1.9 per cent with an Online Bond compared to 1.5 per cent for someone managing a Growth Bond by post or phone. The latter loses out by £567 over three years.
Government-backed National Savings & Investments also shows a bias for online savers.
Guaranteed Income Bonds, which are managed online, pay 1.45 per cent fixed for one year. The only alternative bond-saving option for people who use the phone or post is the Income Bond paying a variable 1 per cent – meaning a pay cut of more than £200 on £45,000.
Inflation takes a bite
Even best-buys for online savers are routinely failing to beat the rising cost of goods. Only regular savings and children’s accounts surpass the 2.7 per cent rate of inflation.
Research by StepstoInvesting, a website for first-time investors, shows that the gap last year between interest rates and inflation was at its biggest for two decades.It calculates that inflation stripped £30.3 billion from cash savings last year – an equivalent of £1,113 per household.
Old-school savers can avoid being ripped off without completely changing how they do business – though it does help to compromise a little.
The Mail on Sunday has sourced options for more competitive in-branch cash savings, as well as a few reasonable alternatives such as postal or phone-based accounts.
All cash accounts mentioned are protected by the Financial Services Compensation Scheme, up to £85,000 per person, per institution.
THE HIGH STREET
Halifax pays a competitive 2.25 per cent on a five-year fixed-rate Isa, whether you open it online, by phone or in branch.
Metro Bank, which is expanding its high street network and aiming for 110 stores by 2020, has one to five-year fixed-rate Isa deals paying between 1.25 and 1.75 per cent, and non-Isa equivalents with terms of three months to three years, paying between 0.75 and 2 per cent.
Nationwide Building Society, which has around 650 branches countrywide, is also more accommodating to its customers’ preferences. It pays 1.85 per cent on five-year fixed-rate bonds and 2 per cent on a fixed Isa for the same term, regardless of how you choose to bank.
Most have branches further afield than their names suggest and will offer more competitive deals than banks. Skipton Building Society has branches spanning Aberdeen to Bournemouth. Coventry Building Society – which is in the top five best-buys for its variable rate Isa at 1.25 per cent – has branches across the Midlands as well as Somerset, Gloucestershire, Oxfordshire, Wiltshire and even one in Sheffield. Check what building societies are in your area and ask for their best savings rates.
Even if you are not familiar with the name, these brands are legitimate and regulated. They are a breed of ‘challenger banks’, so called because of their aim to win customers away from high street institutions.
Kent Reliance has a limited number of branches but customers can also open accounts by post and the provider offers some of the most competitive rates for easy access and fixed-rate Isa accounts. Close Brothers Savings is a market leader for fixed term deposits which can be managed by post. Anyone happy to bank via phone or post should also consider PCF Bank and Hodge Bank.
Savings Champion’s ‘concierge’ service lets customers outsource the burden of researching and setting up savings accounts. It spreads their deposits across leading providers and ensures full protection. The customer still has control and ownership of the accounts. The one-off fee is 0.15 per cent of the amount deposited – a minimum of £500 – and is best value for wealthier savers with £250,000 or more to invest across multiple accounts. But it takes on clients with less and warns off anyone it believes will not benefit financially.
Anyone who is ‘offline’ simply because they need more guidance – and not because they are averse to using the internet – can find courses to help them.
Charity Age UK sometimes run sessions, so enquire at a local shop. Alternatively, call the Online Centres Network on 0114 349 1666, which works to improve people’s digital confidence.
Older and retired savers might assume investing is a bad idea at their age, but it might actually be a prudent move. A financial adviser can find the right solution and assess an individual saver’s preferences as well as needs. Find an adviser through personal recommendations, or if a friend can use the internet on your behalf, use websites such as unbiased and VouchedFor to find a suitable adviser near where you live.