SIMON BAIN: Has saving become elitist?

Savers have had the rough end of it since the financial crash in 2008. But have things got even worse in the past year? Simon Bain reports for Young Money Blog on how the savings market is leaving behind the young and less affluent more than ever

Savings rates ought to move in line with the Bank of England base rate. But while the base rate went up from 0.5% to 0.75% in September 2018, after being stuck at 0.5% for most of the previous nine years, some of the best savings options on the market have actually been disappearing fast.

Cuts, cuts, cuts


The first rule of savings is run a mile from a big bank’s default savings account, unless you want to be fobbed off with rates like 0.25% (Barclays) 0.2% (RBS) and 0.1% (Lloyds, Nationwide and HSBC).

Some challenger banks offer more, like Monzo’s easy access pots (1% plus). By trawling the easy access ‘best buys’ you can find new-fangled online banks like Cynergy offering 1.31% for a cash Isa, or Marcus at 1.34% for a non-Isa. (Bear in mind that Marcus, which is the Goldman Sachs savings offshoot, launched with much fanfare in September 2018 paying 1.5%).

For a while now, the smart money has been migrating to current accounts which offer in-credit interest or regular savings accounts. The seven-day switching service has made it easier than ever to take advantage of this trend – though don’t expect the switch to take the promised seven days if they start checking out your ID. Trust me!

But I’m sad to report that even these offers have are now crumbling. Nationwide used to allow you to pay up to £500 a month into a regular savings account paying 5%, and renew it every 12 months. Then they cut the maximum to £250 a month, then last April scrapped the account altogether.

The building society’s latest substitute is a ‘triple access’ account paying 1.1% as long as you only make three withdrawals or less a year – one more than accounts like VirginMoney’s ‘DoubleTake’ which pays 1.21%.

HSBC, First Direct and M&S Bank (all part of the HSBC group) have kept their regular savings accounts open, but recently cut the rate from 5% to 2.75%. As your money only earns interest when it is paid in, the real rate you are getting is around half of the headline rate, in this case about 1.4% or £45 a year at most.

TSB’s big attraction used to be 5% on all your in-credit balances up to £1500, but that is now 3%. So the most you can earn is, again, £45 a year.

And now Santander, where the 123 account was a haven for those with bigger pots, will in May cut its in-credit rate on up to £20,000 from 1.5% to 1% (it used to be 3%) – and you have to pay a £5 a month fee (used to be £3). This means that even with £10,000 in the account you would only earn £40 a year. You would need to keep a £6000 balance just to break even.

The great savings divide


The only game left in town is switching for a bonus, like I did a while back for the £175 which is again on offer from HSBC for its Advance account.  There’s a minimum pay-in of £1750 per month and you have to have a couple of direct debits or standing orders to switch. Tip: if you have a direct debit with a local authority it may not switch it automatically, so check.

But as you may notice a common theme. To qualify for “best-buy” savings rates, you need a minimum stable income and often the ability to pay for a separate bank account too. This is a double whammy for younger and less affluent customers who have less money to put away – not only do your smaller sums earn less anyway, but you can’t even access the best deals that will permit you the privilege of outpacing inflation!

Inflation is essentially the rate at which the cost of products and services rise. If, for example, the rate of inflation is 4 per cent, this means that you will need £104 to buy the same goods and services next year that you can buy this year with £100. And if the interest you get on savings (and indeed your wage growth) is any lower than 4 per cent, you are actually LOSING money in real terms. That’s because your money hasn’t grown enough, even with a dollop of interest on top, to keep pace with the cost of living.

The UK’s inflation rate actually fell to its lowest level for more than three years in December – 1.3 per cent – down from 1.5 per cent in November. This presented a glimmer of hope for shorter-term savers because it meant that their easy-access cash could, at last, start beating inflation.

But no sooner had this good news come through that the speculation began: will this actually prompt the Bank of England to CUT the base rate to 1.5 or even 1.25%? Mark Carney has been dubbed the Unreliable Boyfriend due to the multiple promises he has made then broken. At this rate, he’ll be worse than even some of Iona’s more dubious exes (Ed: thanks, Dad.)

Some silver linings


There are some silver linings. If you switch to HSBC‘s Advance account, you gain access to its regular savings account which, despite the rate drop, is still worth having – up to £45 a year, and renewable, on top of the windfall. But when it matures, don’t expect to get your money out immediately. For no obvious reason when transfers (especially internal ones) are normally instant, the bank keeps you waiting five working days unless you phone up to protest!

First Direct will pay you £100 to switch, and offers the same regular savings deal (with a maximum £300 a month pay-in rather than £250). The M&S bank deal also has the regular savings offer, and its bonus is worth £180 – but it’s all in M&S vouchers.

Nationwide does things slightly differently: its fee-free FlexDirect account pays 5% on balances up to £2500. That’s worth up to £125.  It only lasts a year, and again, you have to pay in £1000 a month. But at least if you stick with it, the interest rate after a year is still 1%, better than most banks’ default accounts. And there’s a £200 bonus to share with a friend if you sign up and then refer someone else.

RBS is worth watching too, as it has been unveiling regular switching offers with very few strings attached and a pay-out of £150 or £175, though it has no offer at present.

My conclusion? You’ve got to be on your mettle when it comes to maximising your savings. Yes, lots of young people and lower earners will just need to keep things basic to build up emergency funds – if that’s you, any savings account is better than none.

But saving is a smart life choice and you should be rewarded for it. Sadly, there’s only way to make sure that happens (for the time being). Watch out for the current account switching offers – they remain the best savings hacks around.

What do you think? Should Marky C cut the base rate before he quits the Bank of England this week? Are things as bad as Simon is making out? Leave a comment or tweet him – @simonbain16

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