Research suggests that consumers are not only looking for a more attractive interest rate, but also require transparency of choice and simplicity when it comes to opening accounts. It’s clear that many people will not move their savings to a different provider unless there is not only a sizeable difference in the rate offered but also a straightforward and quick process to access it. Sounds like too much to ask?
Persistent inertia among UK savers leaves billions of pounds in cash deposits languishing in sub-optimal accounts.
Since the global financial crisis, there has been a consumer shift away from fixed term accounts toward easy access accounts, significantly diminishing the interest income that savers are generating on their deposits.
Research published in May1 found that £1.10 in every £10 in savings is now held in accounts paying 0% interest, representing a staggering £170bn - approximately the annual GDP of New Zealand - earning no interest for the account holders.
A recent study found that nearly one in ten UK adults have discovered savings they had forgotten about, left sitting idle for an average of four years2.
This passive approach toward savings and cash deposits means that consumers are effectively missing out on billions of pounds worth of interest every year.
So, what are the reasons for this reluctance to secure a higher rate of interest on cash deposits?
Source: Bank of England, Cebr analysis
Savers are reluctant to switch
In April, a YouGov survey of 4,207 UK adults commissioned by Flagstone revealed some of the key drivers of consumer inertia and the resultant sub-optimal outcomes3.
14% of respondents stated that long and complicated application processes to open new accounts discouraged them from switching to a better performing alternative.
Nearly one in five said that loyalty to their existing provider, along with the benefits and perks of their existing account, deterred them from moving their money.
Perhaps most interestingly, 43% of survey respondents said that the difference in the rate of interest offered by their existing account(s) compared with alternative accounts was insufficient for them to consider switching.
The same survey also found that more than four out of every ten savers would be tempted to switch accounts if offered an extra 1 percentage point on their savings.
The best savings rates are higher than most people realise
The big five banks, which hold more than a 60% market share of UK household deposits, typically pay between 0.20% and 0.40% interest on easy access accounts. However, the market-leading rate is currently 1.50%4.
A similar story is true of fixed term deposits. Bank of England data shows that the current average rate for a two-year fixed term deposit is 1.12%, in stark contrast to the best-in-market rate of 2.20%4.
What this highlights is that the differential in the rate of interest that consumers say would motivate them to move their money does exist in the current market. This suggests that there is a fundamental lack of awareness among consumers of the interest rates available. It also points to the fact that their appetite to earn more interest income is blunted to a greater degree than they might admit to themselves by the hassle of opening and maintaining new deposit accounts.
There is a way to do the research and switch multiple accounts in one step
The research suggests that consumers are not only looking for a more attractive interest rate, but also require transparency of choice and simplicity when it comes to opening accounts. It’s clear that many people will not move their savings to a different provider unless there is not only a sizeable difference in the rate offered but also a straightforward and quick process to access it. Sounds like too much to ask?
Flagstone, an online cash management platform, removes many of the traditional barriers and frictions that typically come with identifying the best rates, opening new accounts and transferring deposits from one account to another.
For example, with Flagstone, individuals (as well as companies and charities) can open multiple accounts with different banks, having completed just a single application, without the requirement for any further paperwork when opening additional accounts in the future.
What’s more, the platform provides access to best-in-market and exclusive rates of interest, giving the depositor absolute peace of mind that the money is working as hard as possible.
Account holders can move their cash to new accounts with ease to take advantage of the best rates available at any time.
As such, the Flagstone platform empowers clients to take control of their cash, without all of the traditional barriers and obstacles that we have become so familiar to us, but that should have no place in our technology driven world.
To learn more about Flagstone and how it could benefit you, watch this short video and to open an account click here.
1 Centre for Economics and Business Research (Cebr) Report ‘The UK’s cash deposit market and its sub-groups’ - May 2019
2 Research by Ford Money. Source: MoneyFacts
3 Survey carried out online by YouGov between 9th April and 10th April 2019.
4 Currently available on the Flagstone Platform – Correct as at 19th November 2019.