Big banks cash in on savers with £1 trillion now sitting in accounts paying a pittance

Banks are making a killing off savers with billions in bank accounts, which pay nothing.

Santander has increased its net interest margin — the difference between what it pays savers and charges borrowers — by a fifth over the past year, from 1.59 per cent to 1.91 per cent. After slashing the interest rate for its popular 123 account to 1.5% at the beginning of 2020, it is now only 0.3 percent.

The margin at Lloyds Banking Group (which includes Halifax) has risen by 5.4% over the first nine month of this year. It’s now 2.55 per cent, up from 2.42 per cent a year ago.

Savers hold some £866 billion in easy-access accounts with big banks, which pay as little as 0.01%. This is an increase of £179bn since the start of the pandemic

Savers hold some £866 billion in easy-access accounts with big banks, which pay as little as 0.01%. This is an increase of £179bn since the start of the pandemic

Savers with the big banks hold some £866 billion in easy-access accounts, which pay as little as 0.01 per cent. 

This is an increase of £179 billion since the start of the pandemic. They keep a further £250 billion in current accounts which pay no interest — a rise of £59 billion.

Inflation is expected to reach as high as 5.5% in spring 2022. There are not currently any cash accounts to protect your funds from this rising cost.

Easy-access bank accounts such as Barclays or HSBC, Lloyds and Santander typically only pay 0.01 Percent interest. 

This works out at a paltry £1 in interest a year on each £10,000 — not even enough to buy a cup of coffee.

Yet other providers now pay as much as 0.67 per cent or £67 a year. If interest rates rise rapidly, this gap could widen. Shawbrook Bank’s online account offers the best rate, and requires you to deposit at least £1,000.

Anna Bowes, from Savings Champion, says: ‘Big banks are renowned for not passing on any base rate rise in full. Even if they were to, you would still lose out because they pay such low rates.’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: ‘If you are lucky enough to have been building up savings during the pandemic, you need to switch it from your current account to protect it.’

With inflation running at 5 per cent, £10,000 in savings will, after a year, give you the same buying power as £9,500 today — a loss of £500. 

If you move this cash to a top easy-access account, one paying 0.67 per cent, you’ll reduce this loss to £433. 

Savings people may be nervous about moving money to less-known banks. Consumer champion Which? Nearly 4,500 Savers were asked to rate their service provider. They had to rank the ease of opening an account and customer service. Marcus by Goldman Sachs was rated among the top.

Marcus’s instant access account, which is available only online, pays 0.6 per cent for 12 months, after which the rate will drop to 0.5 per cent. 

Coventry BS offers a 0.3% discount to all new customers who sign up for its Easy Access Saver account. It is accessible by telephone, post or online.

Coventry’s Limited Access Saver, at 0.5 per cent, is also competitive, as long as you do not make more than six withdrawals a year.

Savings accounts