Revealed: how high street banks have been shortchanging savers for years

Which? analysis of three years' worth of savings rates has laid bare the raw deal savers have been getting from high street banks, compared with other providers. 

Despite the base rate having risen to 4.5%, many high street banks are still offering less than 1% on their instant-access accounts. Such paltry rates have resulted in MPs on the Treasury Select Committee hauling in bank bosses to demand an explanation.

Here we reveal which savings providers have offered the most and least competitive rates over the past three years.

Providers slow to pass on base rate increases

Our rate analysis covers a hectic period for savers, which began with the Bank of England (BoE) cutting the base rate to an all-time low of 0.1% in March 2020 – the start of the Covid-19 pandemic. This was designed to support the economy through a period of extreme market turmoil.

But with inflation spiralling into double digits in the past year, the BoE has tried to steady the ship by repeatedly hiking the base rate. The result has been upheaval in the mortgage market as lenders rushed to increase rates for borrowers, yet savers could be forgiven for wondering if banks got the memo. 

While the base rate increased by 1.25 percentage points between 1 December 2022 and 1 May 2023, the market average instant-access rate rose by just 0.63 percentage points, according to Moneyfacts.

Our recent analysis revealed that almost 81% of instant-access accounts were still paying the same rate they were offering one week before the most recent base rate increase on 11 May.

Big banks lag behind

Our analysis of Moneyfacts data shows that the lack of reasonable savings rates on offer from the big banks is nothing new. 

Looking at instant-access accounts over the past three years, Premier League sponsor Barclays put in a relegation-worthy performance, coming joint-bottom in our table. 

The bank’s 'Everyday Saver' account paid an average of just 0.1% between January 2020 and March 2023. This was matched by Lloyds Bank's 'Easy Saver' and Hodge Bank's 'No Notice' account.

Lloyds also features in the bottom three for instant-access Isas – its Cash Isa Saver averaged just 0.13% during the period we looked at. 

Bottom of the pile in this category were Danish-multinational Danske Bank and Nationwide. Both their instant-access Isas paid an average of just 0.08%.

Familiar names also appear at the wrong end of the table in other account categories. For example, Halifax came last for five-year fixed savings accounts (averaging 0.57%), while Royal Bank of Scotland came second last for one-year fixed Isa accounts (0.62%).

Most and least competitive providers for instant-access savings accounts

Challenger banks take up the gauntlet

Challenger banks and building societies beat the big high street banks for every type of savings account in our analysis, except five-year fixed-rate Isas. This was only because no high street bank offered a qualifying five-year Isa during the period we looked at.

The gap was particularly stark for instant-access savings accounts. Challenger banks paid an average rate of 0.57% over the three-year period, while building societies paid 0.42%. High street banks, on the other hand, averaged a paltry 0.16%.

High street banks’ rates eclipsed by challengers

Lesser-known providers topped the table in several savings account categories, with some repeatedly appearing in the top three. 

Private bank Brown Shipley, founded in 1810 to provide financing to shipping merchants, came top for one-year fixed savings accounts, averaging 2.71% (its account is offered through savings platform Raisin). And it came third for instant-access savings, averaging an impressive 1.32%.

For Isas, Castle Trust Bank and Secure Trust Bank both offered highly competitive rates. Castle Trust came second for one-year fixed-rate Isas (averaging 1.92%) and third for five-year fixed-rate Isas (2.26%). Secure Trust was in third place for one-year Isas (1.88%) and second for five-year Isas (2.37%).

Looking at rates today, you could earn £312 more over a year (£382 vs £70) on a £10,000 deposit by putting your money in the market-leading instant-access account (offered by Chip), compared with Barclays’ Everyday Saver.

Can you trust challenger banks?

Just because a name is less familiar, it doesn’t mean it’s not to be trusted. In fact, levels of customer satisfaction are typically much higher for smaller providers, according to our annual surveys of current account and savings account holders. 

Banks have to pass very stringent checks before they’re granted a banking licence in the UK.

In the unlikely event that your provider does run into difficulty, you have a safety net to fall back on. Thanks to the Financial Services Compensation Scheme, your deposits are protected up to £85,000 per financial institution, as long as it’s authorised by the Prudential Regulation Authority.

How to maximise your returns

To take advantage of the best rates on the market, you typically have to commit to managing your savings online or via an app.

Many of the top challenger accounts in our research were online-only, including those from Brown Shipley and Castle Trust (but Brown Shipley did offer phone and postal access on some accounts).

Overall, we found that accounts without branch access paid better rates, on average, than accounts with branch access across almost all savings categories.

The average rate for instant-access savings accounts without branch access over the three-year period we looked at was almost twice that for accounts with branch access (0.64% vs 0.35%). 

There was also a sizeable gap between one-year fixed savings accounts (1.41% vs 1.08%). 

Accounts with branch access tend to pay lower rates

Isas vs savings accounts

Our analysis also confirms that you’re often better off with an ordinary savings account than with an Isa. Non-Isas outperformed Isas for one-year fixed-rate accounts (1.29% vs 1.13%) and five-year fixed-rate accounts (1.83% vs 1.68%).

However, Isas won out for instant-access accounts (0.57% vs 0.45%). This remains the case – the average instant-access Isa paid 2.26% in May, compared with 2.06% for instant-access accounts.

With the sharp improvement in savings rates in recent months, you'll need to consider whether you're likely to earn enough interest to take you above your personal savings allowance. If that's the case, a cash Isa makes sense as your savings can grow tax-free.

However you decide to squirrel away your money, keep a close eye on rates – and don’t be afraid to move your money to a provider offering a better return, even if you haven’t heard of it before.