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In July, the Financial Conduct Authority (FCA) had a meeting with the UK’s nine largest banks to challenge them for their overly low saving rates. As interest rates rose, banks quickly accelerated mortgage rates while keeping saving rates far lagged behind. Hence, the FCA suggested banks be more open to clients on the matter of saving rates. UK banks have always been accused of profiteering from large spreads and refusing to adjust the saving rates, especially for the easy access savings accounts which have a large savers’ base. In early July, BBC quoted the data from Moneyfacts that the average rate on a fixed mortgage of a large bank reached 6.52%, compared with just 2.49% for a typical easy access savings account of GBP 10,000.

Chart 1: Saving rates lag behind mortgage rates

In early August, the Bank of England increased the UK base interest rate by 0.25 percentage points to 5.25%, a 15-year high since April 2008.

The above shows that despite the high interest rate environment, savings rates in major banks remain low and hence not all savers are able to benefit. It comes to the question that we might need to start looking for alternatives when it comes to growing our savings. Here we shed some light on this question with a few cash management solutions mapped out for you.

1.      Having savings accounts outside of major banks

Given their large customer base and strong savings foundation, large banks tend to have more say over saving rates, often falling behind rate hike trends and not prioritising customers’ needs. Savers could start turning to small-to-medium banks that are protected by the Financial Services Compensation Scheme (FSCS) but offer higher savings rates. Taking iFAST Global Bank as an example, its GBP has an AER of 4.25%, plus no lock-in period or capital restrictions, leaving more flexibility for savers to manage their savings.

2.      Going for a fixed deposit of 12-24 months

As mentioned in a previous article, a fixed deposit at iFAST Global Bank for 12-24 months is offering a higher rate than that of the UK Government Bonds over the same duration. A 24-month deposit offers 5.1%, around 60 basis points higher than the yield of UK Government Bonds of the same duration. On top of that, the minimum amount to start a fixed deposit at iFAST Global Bank is GBP1 only which is much lower than major banks, making it more flexible for savers. Unlike government bonds, savings do not incur any investment risk and would be covered by the FSCS for up to GBP85,000. If you have some idle cash that you wish to put into a fixed deposit, you could consider doing it for 12-24 months.

3.      Active Savings Management

According to CNBC, Santander Bank’s survey found out that around 70% middle-income Americans have not shifted their savings to accounts with higher returns despite strong concerns about inflation. These people did not look for better options in the high interest rate environment, which might have been due to convenience, lack of time or tendency to stick to their current banks. With digital banking steadily on the rise, banking has been made much easier with the use of mobile applications. Given the transparency between the savings rates of different banks, it’s time that savers sought better options out there.