Up to 298 times more interest by changing savings account regularly
The Bank of England base rate has now been at its historic low of 0.50% for over three years during which time savers have had no choice but to put up with low returns.
But analysis by independent financial research company Defaqto has found that the average instant / easy access savings rate is now at its highest level1 during that period as banks and building societies battle to attract new retail funds. However, the emphasis has to be on the word ‘new' because many longstanding savings accounts offer unimpressive rates: 22% of easy access accounts pay interest of 0.10% or less on a £1,000 balance.
A basic rate taxpaying saver who deposited a £1,000 balance in May 2009 into an instant / easy access savings account, and left the interest reinvested, would after 3 years have earned net interest of:
Net interest earned by basic rate taxpayer over 3 years on a £1,000 balance
If opened the account with the highest interest rate in May 2009, stayed with it for one year, then transferred to the account with the highest interest rate in May 2010, stayed with it for one year, then transferred to the account with the highest interest rate in May 2011 and stayed with it for one year
If stayed with the easy access account without an introductory bonus that has been available to new customers throughout the period and paid the highest return over the last three years
If opened the account with the highest interest rate in May 2009 and earned that rate for the first year but then earned the average instant/easy access rate for the remaining 2 years
If opened the account with the highest interest rate in May 2009 and earned that rate for the first year but then earned 0.50% gross for the remaining 2 years
If stayed with an account that paid the average instant/easy access rate for the 3 years
If stayed with an account paying 0.10% gross AER throughout the 3 years
If stayed with the lowest paying instant/easy access savings account (which paid 0.01% gross AER) for the three years
David Black, Defaqto's Banking Specialist, said: "This analysis really illustrates the benefits of reviewing your savings account on a regular basis. There are significant benefits in switching your account every year to take advantage of successive accounts offering introductory bonuses. By following this tactic over the last three years you would have earned over 298 times as much interest as the lowest paying account and over three times as much interest as the average interest rate paying account.
"With such a wide variance in the interest rates, savers should wake up and take advantage of the best offers available rather than paying the price for loyally staying with the same easy access savings account for years. Typically the highest rates available either have an introductory bonus or a guaranteed minimum rate, so use them and then switch to another such account when the bonus or initial rate period ends as this will significantly boost your returns. But do make sure that you're aware of, and happy with, any withdrawal restrictions that the account may have."