The truth about easy access accounts
When is easy access NOT easy access?
It’s the right time to ask, given how much dire savings deals are in the news. Chancellor Jeremy Hunt has now got involved, ordering high street banks to pass on better rates to savers rather than concentrate solely on inflicting more (profitable) pain on borrowers.
Despite the Bank of England base rate reaching 5% last month, the big four (Barclays, HSBC, Lloyds and Natwest) are still paying below 1% on their easy access savings accounts. There are lots of reasons why banks are being so stingy right now – they’ve got plenty of cash thanks to lockdown savings and quantitative easing, plus they don’t have to bring in that much more cash when the number of new mortgage deals is falling. Sarah Coles, head of personal finance at Hargreaves Lansdown, says:
Maintaining a large gap between savings and mortgage rates means they make more money. While interest rates were ultra-low, the mortgage market was incredibly competitive, so they were operating on unusually small margins between savings rates and mortgage deals. The rise in rates has given them an opportunity to make up for lost time, so they’re busy filling their boots.
Arguably, we – the great British public – are the mugs that let them get away with it. Surely they’d buck up their ideas if they knew they couldn’t take their customers for granted anymore?
And it’s not like there isn’t a healthy dose of competition in the banking sector now. As well as a rich landscape of online-only banks with lower overheads and more appetite for new customers, there remains a reassuring network of regional building societies all over the UK, many of which regularly outdo their bigger banking rivals when it comes to competitive savings deals. Case in point: Newcastle Building Society, which launched a best-buy easy access deal paying 4.3% only last week.
The logical conclusion is that customers should vote with their feet if they want things to change. If only it were that simple.
Firstly, you have to act with Formula One levels of speed if you want to grab the best deals. That Newcastle account I mentioned? It was pulled within days due to being oversubscribed. This was quite possibly because the rate, whilst technically variable, was guaranteed not to fall less than 0.7 percentage points below the Bank of England base rate until the end of 2025. Beady-eyed savers are chasing down the best deals on the market before they get pulled, but not everybody has the time or ability to become a full-time savings dork.
Also, the best easy access accounts out there aren’t always what they seem. Opinion is sharply divided on whether the next best deals on the market, offered by the likes of Paragon and Sainsburys, deserve the label ‘easy access’ because they limit withdrawals. I can see why some feel the label is misleading, certainly in comparison to unlimited withdrawals allowed by Chip and on Premium Bonds.
Some of the challenger banks may be taking advantage of our increasingly online money universe, dominated by simplistic best buy tables and ‘phone-it-in’ savings guides designed to rank well in search engines. Attractive headline rates can disguise myriad terms and conditions that means it’s a best buy for about 13 people in the country, and you’re probably not one of them.
Having said that, if a cap on withdrawals makes people think twice before raiding their savings for anything less than a genuine emergency, I’m here for it. It may be an unintended consequence but for once, it’s a positive one.
I’m much less enamoured with the fact that you have no choice but to go online to access these better deals. It’s just not right that certain customers lose out on interest that’s rightly theirs if they want or need to bank in-branch.