As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
Why switching savings accounts is vital to your portfolio
Anyone who keeps an eye on best buy tables may have noticed some encouraging shifts within the savings section. Dare we say it, the race to the top is hotting up in a clear signal that banks and building societies are finally beginning to compete for consumer money – hopefully even more so now that the Bank of England has decided to hike base rates.
In the easy access space over the past month, we've seen Post Office come in with an account offering a headline AER of 1.33 per cent - soon followed by the 1.35 per cent offered by Birmingham Midshires. And, in the past week or so, Coventry Building Society has come to the fore with a new account offering 1.40 per cent (albeit with a limited number of withdrawals per year).
Given that inflation continues to hover at around 2.4 per cent, none of the above will be getting people leaping off their chairs. But it is a marked improvement on the dismal returns the high street has offered on savings accounts in recent times.
Or is it?
The devil is in the detail
All of the aforementioned table-toppers, along with many others in their slipstream, offer this headline rate for the first 12 months only. In fact, this rate includes a built-in temporary 'bonus', and, once a year has passed, the account reverts to paying out derisory returns in the more familiar region of 0.2 to 0.4 per cent.
Therefore, it would appear that it is less about being fair to customers; more about enticing them with an introductory offer, before relying on the individual's subsequent inertia to boost margins. Little wonder then that some websites have decided to exclude these types of accounts from their best buy tables entirely.
Is a minimum savings rate the answer?
A paper recently published by the Financial Conduct Authority (FCA) has proposed the idea of a 'basic savings rate' - something which would be imposed upon any bank or building society that offers an easy access savings account or cash ISA. The proposal follows an FCA study from 2013 which found that over 30 per cent of savers had kept the bulk of their money in the same account for five years or more, and were being penalised as a result of the diminishing returns providers tend to offer on static accounts. Indeed, some accounts pay an astonishingly-poor rate of just 0.01 per cent.
Given that 80 per cent of money in the savings market currently sits in the easy access space (according to Savings Champion), it is clear that the loyalty shown by many customers is costing them significantly, rather than being rewarded. While banks and building societies would be free to set their own basic savings rate, the FCA estimates that such an initiative would see net interest payments to customers rise by circa £300 million each year within the easy access space.
Switching is where the gains are
While a basic savings rate would undoubtedly be a force for good, the downside, as acknowledged by the FCA, is that introductory offers would likely become less competitive, as providers inevitably seek to make gains elsewhere. This would have the unfortunate consequence of hurting those who diligently switch savings accounts and play the market to their advantage.
As such, it is our view that customers may be better served by the authorities focusing on the process of switching savings account itself. At present, the difficulties of moving an easy access account are very much dependent on the account provider. Some make it quick and easy, but many others put obstacles and red tape in the way - for obvious reasons.
The Current Account Switch Service has been a notable success story within consumer finance, and we believe that implementing a similarly automated, standardised procedure for easy access savings accounts - where the switch is guaranteed, and the onus on the provider to facilitate it - would pave the way for better competition, and a more consumer-friendly market that yields better returns as a result.
Whether such a measure and/or a basic savings rate come to fruition remains to be seen. But, in the meantime, it is strongly advisable to consistently reassess the money you allocate to a savings account, and that you be prepared to make the switch if returns are not up to scratch. That may be to another savings account, or, if you are willing to move up the risk spectrum, you could look to peer-to-peer lending as an alternative.
Bottom line: money that sits idly in easy access accounts loses out over time, and you could also be in danger of missing out on gains over the coming weeks as a result of the base rate increase. So, if yours has been squirrelled away in the same place for a while, and you haven't recently assessed any alternatives, then now might be the perfect time to make the switch.
Related articles:
Why the time is right for the Bank of England to hike rates
Your pension: how much is enough?
Is the time right for digital cash?
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
As with all investments, your capital is at risk.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
When it comes to investing, there are numerous questions that need to be asked, and lots of things which need to be properly understood before committing your hard-earned money
Featured
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
There is a variety of literature and research illustrating the importance of building brand loyalty, albeit with some degree of variance.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The idea of peer-to-peer (P2P) lending is a simple one; you lend money to those who wish to borrow, with a view to receiving a great return for doing so.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Most popular
January tends to be a comedown following the Christmas festivities, and, from a personal finance perspective, a time for many Britons to lick their wounds. In particular, for those who’ve over-extended their credit card, it may feel like the walls have started to close in.
A new year, and indeed a new decade has dawned. Reflecting on 2019, what seemed to have got lost in the noise and political hysteria was the fact that the UK economy actually held up remarkably well.
As the good times rolled in the mid-2000s, only a precious few sounded the alarm as lending became increasingly reckless. Northern Rock's infamous 'Together' 125 per cent mortgage epitomised the rush for high loan-to-value (LTV) deals at a time when it was thought that house prices would just keep going up forever.
For those with an eye on the economy, 'GDP day' is always one to mark off in the calendar each month. And it's been a hot topic for the UK in 2019, with the latest update showing zero growth for the period from August to October.
One of the perceived strengths of the auto-enrolment pension scheme is its simplicity – indeed, it is actually a greater effort for an employee to opt-out of a workplace pension than it is to be enrolled into one. No further actions are required, and the retirement fund grows as the months and years pass by.
On Monday this week, a new FCA regulatory framework came into effect for peer-to-peer (P2P) lending in the UK, in line with June’s PS19/14 Policy Statement.
Recent
The Lending Works Shield does not give you a right to a payment so you may not receive a pay-out even if you suffer loss. The Lending Works Trustee has absolute discretion as to the amount that may be paid, including making no payment at all. Therefore, investors should not rely on possible pay-outs from the Lending Works Shield when considering whether or how much to invest. For more information click here.