Even with the prospect of the SEAR, don't leave your cash to dwindle in a high street bank
More than two thirds of building society accounts pay a higher interest rate than the base rate, compared to just over half of accounts held with banks.
Updated research from Savings Champion has shown that building societies continue to pay better rates to their customers than banks.
The average on-sale variable account rate from a bank has dropped by over 22% in the last six years - almost four times the drop in the average rate for building societies. For the last 12 months, on average building societies paid their customers over 27% more than banks.
Whilst it's almost 18 months since the Bank of England base rate rose to its highest level since February 2009, the rate of 0.75% is still far lower than the level of return that savers would expect their savings accounts to achieve.
With this minimum expectation in mind, more than two-thirds of building society accounts (67%) pay a higher rate than the base rate, compared to just over half of accounts from banks (51%) - a significant difference between the two groups.
And while you would expect many of these low rates to be found amongst providers' older accounts that are closed to new business - it is not solely the case.
Over the last six years, the average rate for an on-sale variable account from a bank has dropped by almost four times the average for on-sale building society accounts - a 21.88% drop, as opposed to just 5.65%.
Off-sale accounts have still suffered badly with both groups, with banks cutting marginally less - 19% over the last six years compared to 22% by the building societies - but the current average closed rate from banks is paying just 0.87% compared to the average closed building society rate of 1.01%. We'll have to wait and see what effect the FCA's proposed Single Easy Access Rate (SEAR) will have on these rates.
Looking more closely at the last 12 months, the overall average variable interest rate paid by building societies was 1.07%, compared to 0.84% from the banks - 27% higher - showing a clear gap between the two groups.
Anna Bowes, Co-Founder of independent savings advice site, Savings Champion said:When it comes to the average rates, there is a clear disparity between the two groups and it demonstrates that building societies on the whole pay higher rates and are therefore treating savers more fairly than banks.
Of course, there are plenty of examples of providers within both groups that buck the overall trend, so savers should certainly still be looking at the best possible options on the market before taking action.
The most obvious example of this are the challenger banks, which are clearly an exception to the rule, as many of these providers are actively competing in the savings market and in many cases dominating the best buy tables.
The same cannot be said of the big high street banks, which are dragging the average rates down by paying some of the worst rates on the market. We know that significant sums are still held with the high street banks and these figures should be another wake-up call for savers to switch to a better deal - regardless of the prospect of the SEAR, which at best may improve the rates on some older accounts marginally.
For example, savers with funds languishing in the HSBC Flexible Saver have actually suffered a rate cut recently. In December 2019 the bank cut the rate from an already dreadful 0.15% to 0.10% - so on a balance of £50,000 savers will earn just £50 a year. If that cash was moved to one of the best buy easy access accounts paying 1.40%, they could be earning 14 times more interest, £700 gross per year.
Bowes adds There are competitive rates to be found, so savers must not accept paltry returns, instead switch to a better-paying alternative without delay. If your provider does not reward your loyalty, then don't stand for it.
