Hot on the heels of the FCA’s proposal to try and improve competition between savings providers – by introducing a Single Easy Access Rate (SEAR) - it was disappointing, to say the least, to hear news that another two of the big high street banks are looking to cut rates on some of their accounts.
The biggest shock will be to Santander’s 1|2|3 Current Account holders. The bank has announced that it will be cutting the rate payable from 1.50% AER to just 1% AER from 5 May 2020. In addition, the Bank is restricting the amount of cashback that can be earned.
The Santander 1|2|3 Current Account has been a really popular account, even for savers, as it paid a high level of interest on a comparatively high balance – but over the years it has become less attractive with cuts to the interest rate (remember when it paid 3% AER?), an increase to the monthly fee back in January 2016 from £2 to £5 and now the scaling back of the cashback as well as the rate cut. But with no reduction to the monthly fee, the shine has well and truly been tarnished and no doubt Santander customers will be bitterly disappointed. Those who hold this account will need to make sure that it is still good value – they can certainly earn far more interest on their savings elsewhere.
Given that there is a monthly fee of £5 on the 1|2|3 account, if you maintain a balance of £20,000 then the £199 interest you would earn over 12 months is reduced by £60 – which means that the interest earned would equate to 0.70% AER, rather than 1%. Far better easy access rates can be found elsewhere, so even if the current account is working for you as it does offer cashback on some of your bills – although this too is being scaled back - it may be prudent to move your savings. Rates of up to 1.40% can be found elsewhere.
Current accounts as savings vehicles have become far less relevant over the years, as the interest-bearing balance is normally pretty low and the rates being offered are, on the whole, similar if not lower than a normal easy access savings account.
That said, Nationwide is paying 4.89% gross/5% AER on its FlexDirect Account but that rate is only applicable for 12 months and the maximum interest-bearing balance is just £2,500. TSB is paying 2.96% gross/3% AER on a balance of up to just £1,500. There are also switching incentives that can be valuable – but savers need to make sure that the account is right for them as well as the interest and incentives.
Gatehouse Bank is paying 1.40% AER on its Easy Access Account. On a balance of £20,000, savers could earn £280 gross over 12 months, compared to just £199 with Santander once the new rate is introduced – and that doesn’t take into consideration the monthly current account fee.
In addition to this news from Santander, in the last month three of the big high street banks have cut or announced that they will be cutting their rates - from dreadful to shocking.
The HSBC Flexible Saver was cut from 0.15% to 0.10% on 18th December – for new and existing customers.
Lloyds Bank cut the rate for new Easy Saver customers from 0.20% to 0.10% on 10th December. Existing customers remain at 0.20% at the moment.
Now NatWest has announced it is cutting the rate on its Instant Saver by 0.10% across all tiers from February this year. This means that on balances of up to £25,000 the new rate will be just 0.10% AER and on balances of between £25,000 to £1m it’ll be 0.20% AER.
These rates are, quite frankly, appalling and as many people hold their savings with their high street bank, it’s no wonder that there is so much inertia in the savings market – this is all that many people think they can earn on their hard-earned cash. With rates on live accounts from the key providers at such low levels, it’s unlikely that the Single Easy Access Rate (SEAR) will have any positive impact for those who leave their money languishing with their high street bank.
Savers need improve their lot themselves – intervention by the regulator is unlikely to make a significant improvement – so it’s up to us to review and switch our savings regularly.