Savers missing out on substantial interest

Huge gap between e-savings and traditional High Street products boosts lenders’ profits, reports Moneynet.co.uk.

Millions of savers are likely to be losing out on thousands of pounds in interest because of the massive disparity between rates for online, e-savings accounts and ordinary instant access High Street savings accounts, according to new research by personal finance data analyst Moneynet.co.uk.

Top of the range Internet instant access accounts such as Icesave’s Easy Access and Birmingham Midshires’ Websaver Account deliver above base rate interest of 5.70 per cent – vastly superior to the likes of Cheltenham & Gloucester’s popular Cheltenham Gold account, which pays a below inflation level 1.70 per cent on deposits of £25,000 and more.

A saver with £25,000 in the C&G account would earn just £425 a year before tax. But that same amount in one of the 5.70 per cent paying accounts would enjoy interest at £1,425 a year.

“Leave that same £25,000 there for five years, and you have earned a generous £7,125 – a full £5,000 more than had it languished in the C&G Gold account. I know which one I would go for,” said Moneynet.co.uk chief executive Richard Brown.

“Banks and building societies will not divulge precisely how many of their customers have savings accounts due to commercial sensitivity.

“But there are 191 million live bank accounts (BBA, April 2007) and a further 15 million adult building society savings accounts, so it is fair to assume that a substantial percentage of these accounts will be held in ordinary, poorly paying High Street accounts,” added Brown.

One of the reasons some lenders are able to offer above-inflation paying accounts is precisely because of very low rates typical of the traditional High Street products.

“There are obvious exceptions, such as the online-only banks, for instance Abbey’s Cahoot, and of course many account holders will not be sufficiently Internet-savvy to run savings accounts online.

“But the huge disparity between the standard and e-savings rates – more than four per cent in some cases – does seem unfair on the millions of people who are bound to have High Street based savings,” said Brown.