Savers urged to make 1 change as common mistake costs them £300 per year | Personal Finance | Finance

Savers could be missing out on nearly £300 in interest annually by dismissing lesser-known banks, analysis found. Moneyfactscompare revealed that challenger banks paid nearly 3% more interest on their easy-access accounts on average than the likes of Barclays, HSBC, Lloyds, Natwest and Santander.

The average interest rate across these providers was down from 1.37% last year to just 1.19% on flexible easy access accounts, which allow savers to put their money away with unrestricted withdrawals and deposits. Santander offered the highest rate at 2%. However, the top challenger banks offered a much higher average rate of 4.12% on their easy-access accounts, across Charter Savings Bank, Chase, Kent Reliance, Shawbrook Bank and Spring.

This means that if a saver moved £10,000 from a big-name bank to a challenger bank, they could earn £293 more in interest on average each year.

Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, 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.”

She said 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,” she added.

The financial analyst highlighted that savings are protected in many challenger banks under the Financial Services Compensation Scheme (FSCS), which protects deposits up to £120,000.

However, she urged savers to remain alert, because the introductory rates can quickly drop.

“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.”