A leading consumer expert has issued a stark warning to UK savers, urging them to look beyond familiar high street names or risk missing out on hundreds of pounds in interest each year.
The High Street Savings Trap
Matthew Jenkin from the consumer champion Which? has highlighted a common and costly mistake: limiting savings choices to major banks like NatWest, Barclays, Nationwide, and Santander. He explained that the comfort of a household name often comes with a significant financial penalty.
For instance, depositing £10,000 in a typical high street instant-access account, paying an average of 1.15% AER, would generate just £115 in annual interest. In contrast, the top-paying accounts for larger deposits currently offer rates as high as 4.48% AER, which would yield £448 over the same period.
"That's a difference of more than £300," Mr Jenkin stated, emphasising how breaking out of your comfort zone to consider smaller, online providers can leave you substantially better off.
How to Save Smarter and Stay Protected
For those nervous about lesser-known institutions, Jenkin advised a crucial safety check: ensuring the provider is covered by the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000 if a firm fails.
He also warned against passive saving, where money is left to languish in outdated accounts. "Rates can chop and change so fast, it can be hard to keep up. But neglecting your savings can cost you," he said. This is particularly critical for fixed-term accounts, where banks may automatically move matured funds into lower-paying accounts unless instructed otherwise.
Jenkin flagged another pitfall: temporary bonus rates. "Chase's Saver, for instance, pays 4.5% AER including a 12-month 2% bonus - but drops to 2.5% afterwards," he noted, advising savers to diary when bonuses end and switch promptly.
Advanced Strategies and Tax Efficiency
To optimise returns, Jenkin suggested several tactics. One is using a savings platform that allows easy switching between accounts via a single login, though he cautioned to watch for hidden fees. Another is the 'split and save' method, keeping some funds in easy-access accounts while locking the rest into fixed-rate bonds maturing at different times.
While longer-term fixes of up to seven years are now available, he urged caution. "Those who opened long-term fixed accounts before rates skyrocketed are still stuck with low returns," he explained, warning the same could happen if rates rise again after you lock in today.
Finally, he highlighted the importance of tax planning. With Personal Savings Allowances of £1,000 for basic-rate and £500 for higher-rate taxpayers, using a cash ISA can shield savings from HMRC. He noted a future change: from 2027, the cash ISA limit for under-65s will fall to £12,000, with the remaining £8,000 of the £20,000 annual allowance needing to go into a stocks and shares ISA.
