Savers have been warned they could be shortchanged by hundreds of pounds by sticking with big name high street banks, a consumer watchdog has found.
Which? says that unjustifiably low savings rates are being paid by established bank giants like Barclays and Lloyds Bank.
With millions of consumers still feeling the impact of an unrelenting cost of living crisis, it has become even more important to get better returns on savings accounts.
Now the consumer champion says it believes that the Financial Conduct Authority should take appropriate action against firms who continue to shortchange customers.
Meagre savings rates offered by some high street banks are shortchanging customers by more than £300 every year compared to deals from challenger banks, Which?’s in-depth analysis of rates stretching back three years has found.
With millions of consumers still feeling the impact of an unrelenting cost of living crisis, it has become even more important to get better returns on savings accounts (stock image)
The study looked at six types of accounts: instant access savings accounts and Isas; one year fixed rate savings accounts and Isas and five year fixed rate savings accounts and Isas.
Deals from banks were only included if they were available to customers for at least 12 months within three years.
For instant access accounts, Barclays finished joint bottom of the pile. Its ‘Everyday Saver’ account paid an average of just 0.1 per cent between January 2020 and March 2023.
It was joined by Lloyds Bank for its ‘Easy Saver’ and Hodge Bank for its ‘No Notice’ account, which also paid an average of just 0.1 per cent.
Lloyds also came in the bottom three for rates offered on instant-access Isas. Its ‘Cash Isa Saver’ paid an average of just 0.13 per cent during the period researched.
The Danish bank Danske and Nationwide came below Lloyds, both offering a average rate of 0.08 per cent.
The gap between traditional high street lenders and challenger banks and building societies was widest when it came to instant access savings accounts.
Challenger banks paid an average rate of 0.57 per cent over the three-year period, while building societies paid 0.42 per cent. High street banks, on the other hand, averaged 0.16 per cent.
Which? says that unjustifiably low savings rates are being paid by established bank giants like Barclays and Lloyds Bank (stock image)
Which? says that some of the best performing providers in the analysis may be names many consumers have not heard of before.
Private bank Brown Shipley came top for one year fixed savings accounts, averaging 2.71 per cent, with its account offered through savings platform Raisin. Brown Shipley came third for instant access savings, averaging 1.32 per cent.
Saga and Gatehouse Bank topped the pile when it came to instant access Isas, offering average rates of 1.49 per cent and 1.25 per cent, respectively.
Despite the competitive rates on offer, challenger banks have struggled to prise customers away from bigger and more established names. According to Hargreaves Lansdown, a third (32 per cent) of people thought that interest rates were too low to bother switching banks, while almost one in ten (7 per cent) thought that high street banks were safer.
However, the consumer champion’s analysis shows that, looking at rates today, savers could earn £312 more over a year (£382 versus £70) on a £10,000 deposit by putting their money in the market-leading instant access account offered by Chip, compared to Barclays’ Everyday Saver. Based on a £1,000 deposit, you’d earn £31.20 more (£38.20 versus £7).
Lloyds’ ‘Cash Isa Saver’ paid an average of just 0.13 per cent during the period researched (stock image)
The findings come as the Treasury Select Committee wrote to high street banks to ask them what proportion of their interest rate rises are passed on to their savings customers.
Which? believes such measly rates are unjustifiable, particularly at a time when borrowers are being hit with higher interest rates.
Jenny Ross, Editor of Which? Money, said: ‘With millions of consumers still feeling the impact of an unrelenting cost of living crisis, it’s become even more important to get better returns on savings accounts. Yet, our research shows that established high street banks are shortchanging customers by potentially hundreds of pounds a year.
‘If the FCA’s Consumer Duty is worth the paper it’s written on, the regulator will clamp down heavily on firms offering unjustifiable savings rates.
‘Our advice is simple: if you’re not satisfied with the rates you’re currently receiving, now’s the time to switch.’
The Financial Conduct Authority (FCA) also wrote to high street banks asking them to justify their lower savings rates, and threatened to take ‘onerous interventions’ if firms could not justify passing on interest rates.
The FCA’s new Consumer Duty that will be introduced in July will encourage firms to give fair value to customers, and Which? is encouraging the regulator to act quickly should firms fall short of requirements.
MailOnline has contacted Barclays and Lloyds for comment.
