Savers miss out on ‘extra £7bn in interest by failing to switch to challengers’
Savers are losing out on an extra £7 billion of interest by failing to switch to challenger banks as the high street lending giants retain their stranglehold on the market, according to research.
A report by the Centre for Economics and Business Research (Cebr) for cash deposit platform Flagstone, has revealed that the Big Five lenders – Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander – hold £827 billion of the £1.3 trillion in UK household deposits, equivalent to a 63% market share.
Their dominance on the market comes despite significantly lower rates of interest paid on deposits by the five major players, with “widespread inertia” among savers reluctant to shop around for the best deal.
The Big Five players are offering a maximum of £3.4 billion in interest on current instant access and fixed-term deposit accounts over the next 12 months, the study shows.
But it revealed if savers switched to the best rates paid by the smaller competitors, they could earn up to £7 billion more over the same period.
This is because the rates of interest can be far higher with the challengers.
For example, the research shows the best deal on an instant saver with the Big Five banks pays 0.4%, while Virgin Money offers 1.5% on its e-saver easy access account.
A survey of 4,207 people by YouGov to accompany the report discovered that more than four in 10 savers said they would be tempted to switch accounts if offered an extra one percentage point on their savings.
The report said, given that most challenger bank accounts offer rates at least one percentage point higher than their Big Five rivals, this suggests many savers are either not aware of the better deals on offer or are put off by the hassle of switching.
This reluctance to switch means that £170 billion is still languishing in zero interest accounts – up from £33 billion since 2008 and accounting for 12% of the UK’s household cash deposit market.
Andrew Thatcher, co-founder and co-managing partner of Flagstone, said: “This study reveals the high-levels of inertia in the cash deposit market and the challenges that non-high street banks face in raising deposits.
“Consumers continue to tell us that price is an important factor in choosing where to place deposits and this is borne out in the study, but despite challenger banks offering significantly higher rates than the high street banks, switching is not occurring at a fundamental level.”