Caitlyn Eastell, Personal Finance Analyst at Moneyfacts, said:
“Loyalty to big banks can leave savers hundreds of pounds worse off, an amount that many may struggle to spare. With savings rates expected to drop further from the peaks seen over the past few years, staying in a low-paying account may amplify the cost, making it harder for savers to reach their financial goals. Switching to a lesser-known challenger bank could help offset this, as they often offer more attractive rates. By operating digitally with lower overhead costs, challenger banks can pass on cost savings to customers, giving them the opportunity to improve their returns.
“Someone with £10,000 in a typical big bank easy access account could earn just £119 in a year, compared to the £412 in a typical top challenger bank easy-access account. The incentive to switch quickly becomes clear, but even small differences in interest rates can make a big impact over time.
“Savers don’t have to take on additional risk by switching to a smaller or digital provider because many challenger banks are also covered by the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000.
“However, savers should remain alert. Challenger banks often lead the market with headline rates that include limited-time bonuses, sometimes exceeding 2%. Bonus rates reward active switchers, allowing them to access the best rates and boosted returns in the short-term, but they also drive competition between providers, pushing banks to offer better deals all-round. Once bonuses expire, rates can fall sharply, so passive savers risk being left behind and those seeking stability may find these less suitable for long-term planning.”
Caitlyn Eastell, Personal Finance Analyst at Moneyfacts, said:
“Loyalty to big banks can leave savers hundreds of pounds worse off, an amount that many may struggle to spare. With savings rates expected to drop further from the peaks seen over the past few years, staying in a low-paying account may amplify the cost, making it harder for savers to reach their financial goals. Switching to a lesser-known challenger bank could help offset this, as they often offer more attractive rates. By operating digitally with lower overhead costs, challenger banks can pass on cost savings to customers, giving them the opportunity to improve their returns.
“Someone with £10,000 in a typical big bank easy access account could earn just £119 in a year, compared to the £412 in a typical top challenger bank easy-access account. The incentive to switch quickly becomes clear, but even small differences in interest rates can make a big impact over time.
“Savers don’t have to take on additional risk by switching to a smaller or digital provider because many challenger banks are also covered by the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000.
“However, savers should remain alert. Challenger banks often lead the market with headline rates that include limited-time bonuses, sometimes exceeding 2%. Bonus rates reward active switchers, allowing them to access the best rates and boosted returns in the short-term, but they also drive competition between providers, pushing banks to offer better deals all-round. Once bonuses expire, rates can fall sharply, so passive savers risk being left behind and those seeking stability may find these less suitable for long-term planning.”
