Savers urged to make 1 change as common mistake costs them £300 per year (Image: Getty)
Savers could be missing out on nearly £300 in interest annually by dismissing lesser-known banks, analysis found. Moneyfactscompare revealed that challenger banks paid nearly 3% more interest on their easy-access accounts on average than the likes of Barclays, HSBC, Lloyds, Natwest and Santander.
The average interest rate across these providers was down from 1.37% last year to just 1.19% on flexible easy access accounts, which allow savers to put their money away with unrestricted withdrawals and deposits. Santander offered the highest rate at 2%. However, the top challenger banks offered a much higher average rate of 4.12% on their easy-access accounts, across Charter Savings Bank, Chase, Kent Reliance, Shawbrook Bank and Spring.
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This means that if a saver moved £10,000 from a big-name bank to a challenger bank, they could earn £293 more in interest on average each year.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: “Loyalty to big banks can leave savers hundreds of pounds worse off, an amount that many may struggle to spare.
« With savings rates expected to drop further from the peaks seen over the past few years, staying in a low-paying account may amplify the cost, making it harder for savers to reach their financial goals. Switching to a lesser-known challenger bank could help offset this, as they often offer more attractive rates.
« By operating digitally with lower overhead costs, challenger banks can pass on cost savings to customers, giving them the opportunity to improve their returns. »
She said someone with £10,000 in a typical big bank easy access account could earn just £119 in a year, compared to the £412 in a typical top challenger bank easy-access account.
« The incentive to switch quickly becomes clear, but even small differences in interest rates can make a big impact over time, » she added.
The financial analyst highlighted that savings are protected in many challenger banks under the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000.
However, she urged savers to remain alert, because the introductory rates can quickly drop.
« Challenger banks often lead the market with headline rates that include limited-time bonuses, sometimes exceeding 2%. Bonus rates reward active switchers, allowing them to access the best rates and boosted returns in the short-term, but they also drive competition between providers, pushing banks to offer better deals all-round.
« Once bonuses expire, rates can fall sharply, so passive savers risk being left behind and those seeking stability may find these less suitable for long-term planning.”
