Can cash platforms help cure savers' inertia?
According to some recent research from Shawbrook Bank, more than half of savers have not switched their savings accounts in the past year – even though rates have soared. In September last year the top easy access account was paying 2.10% - today you can earn 5%. Likewise, the top 1-year bond was paying 3.47%, now you can earn 6% or more.
This means millions of savers are potentially leaving their cash languishing in poor paying accounts. Although most variable savings accounts will have seen some increases over the last couple of years, driven by the Bank of England base rate hikes, but how much of these increases have been passed on varies dramatically.
And with the Bank of England base rate remaining steady at 5.25% at the latest Monetary Policy Committee (MPC) meeting, we could be at, or close to the peak in the current interest rate cycle. Now is the time to get your savings sorted.
So why don’t people switch? Inertia has long been the savers’ enemy, with many people put off by the administration burden – actual or anticipated – with opening, monitoring and switching their savings accounts. And if you have a much larger sum of money in cash, you’ll normally need to open a plethora of accounts to keep it protected by the Financial Services Compensation Scheme (FSCS) – often with providers you may not have heard of, and are therefore concerned about their security.
The good news is that there are now a number of options for cash-rich but time-poor savers to earn more interest on their savings. This includes the use of cash savings platforms. These offer a simple way to improve the returns you are getting from poor paying accounts, especially with the high street banks - and you can split your funds so that you can ensure your money is protected by the Financial Services Compensation Scheme (FSCS).
Cash platforms have the potential to transform the savings market once people truly understand the benefits. They’re not necessarily for the rate chasers, as they are not whole of market, although they do often offer market-leading exclusive accounts. But where the real benefit comes in is for those savers with larger sums of money, who don’t have the time or energy to keep monitoring, then switching and splitting up money between accounts and providers to improve the rates they’re getting and keep that money protected.
What are cash savings platforms?
A cash platform is best described as a savings supermarket, where you apply once to open your account and once ‘onboarded’, you can move your money between multiple accounts and providers (dependant on who is on the platform at that time) so your money shouldn’t remain idle. There is currently almost £258 billion sitting in current accounts, earning no interest at all – and huge amounts more in accounts paying less than half the current level of the Bank of England base rate and top rates on offer.
The real beauty of these platforms is mainly the simplicity, as many people are put off by the thought of all the admin that comes with opening and managing multiple savings accounts. But you can also rest assured that if a bank you have not heard of is offered by your chosen platform, that it and the accounts being provided are legitimate. There may be accounts with international banks that are covered by different compensation schemes, so check with your platform if you are unsure.
With a cash platform, at the click of a button you can switch when a new, improved account comes along or when your bond matures, without the need to fill in yet another application, with a new login and/or password to remember and more security questions and ID checks to fulfil. You apply once and the rest is history, so to speak.
This saves time for those trying to trawl the market looking for the best savings deals and then applying for each account individually, and reduces administration and paperwork, as everything a saver needs – annual interest statements, a summary of their cash positions etc – is provided in one single, secure place.
How these platforms work and the number of partner banks and accounts you have access to varies from platform to platform, but the premise is the same – complete one application and you have access to a variety of accounts. For an up to date comparison of platforms, visit Savings Champion.
Types of cash savings platforms
Some platforms are effectively a portal to open one or more savings accounts, more on an ad hoc basis rather than as a whole cash management solution, where the rate of interest on offer is what you are looking out for – and there is no explicit fee. These platforms make their money from fees that their partner banks pay them, which in some instances can mean that the accounts available on the platform pays less than the rate you can earn on the open market with the same providers. That said, this is not always the case and in some instances the platform is the only way to access these accounts, which may be market-leading.
Other cash platforms charge an explicit fee, based on how much you have deposited, and these are probably more appropriate for savers with larger sums who want a complete cash management solution. These platforms often provide an initial bespoke and free-of-charge illustration to show where your money can be deposited, based on your access requirement and therefore how much you could improve your cash returns. You can then deposit all your money onto the platform in one go and then confirm the accounts you want your money to be split into. A truly simple way to open multiple savings accounts.
It's important to decide which platform works best for you.
What are the benefits of cash savings platforms?
There are a number of benefits to cash savings platforms; they can save you time, help protect your money with the Financial Services Compensation Scheme (FSCS) and reduce the administrative burden.
The very best rates can be achieved by scouring the whole market and opening as many accounts as required, with the best rates. But for those who don’t have the time, or inclination, a cash savings platform might be the compromise which means you don’t leave your cash languishing with your high street bank. With just one application process, it makes choosing and switching much easier, helping you get a better return than you already have.
The ease of opening new accounts means it’s easier to spread the cash between a number of providers, to keep more of your money protected under the FSCS. One thing to be aware of is that if you hold cash outside the platform with a provider that you are also considering on the platform, you need to add up ALL the funds, both on and off the platform, when checking if you are with the FSCS limits.
Ongoing help with administration
You can have complete visibility of all your cash savings accounts when you log onto your platform account, including when they mature and what interest rates you are earning. You will also be reminded when you have a bond about to mature and some platforms will let you know if a new and better paying non-fixed rate account has been added that you may want to switch to.
Another huge time saver is that the platform will produce a single tax certificate at the end of the year – no more calling around to all providers in order to make sure you know exactly what interest you have earned and therefore if you are paying the right amount of tax.
How to maximise interest on your savings
The best way to maximise interest on your savings is to shop around. Actively manage your cash savings and switch to the highest paying accounts to earn better interest. For too many years now, high street banks have relied on our inertia and so pay some of the lowest rates on the market, especially on older, obsolete accounts that people have held for far too long.
The latest innovation in the savings market, Cash Savings Platforms, are growing in breadth and popularity. Their evolution is exciting and, hopefully, as they continue to develop, this will reduce the inertia that savers suffer from, as they make it easier for people to switch.
Do you need help with your cash savings? Why not get in touch and arrange a free initial consultation to speak to an adviser about services that could benefit you.
This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.
Savings Champion and their associated services are not regulated by the Financial Conduct Authority (FCA).