It is a commonly uttered truism in personal finance that loyalty doesn’t pay.
After years of complaints, the city regulator a fortnight ago announced proposals to clamp down on the practice of insurance companies cashing in on customer loyalty in the form of successively higher premiums.
And the same is often true in the world of savings. Savers who have been with their bank or building society for a long time are often the first to bear the brunt of any cuts.
Loyalty often doesn’t pay for savers, but some banks do reward existing customers
Providers take the knife to the rates paid on their back books safe in the knowledge very few people switch.
Indeed, a 2018 study by the Financial Conduct Authority found just one in 10 holders of easy-access savings accounts and Isas had switched in the last three years.
Meanwhile, accounts opened more than half a decade ago, constituting 60 per cent of the entire savings market, were being paid 0.42 percentage points less interest than newer savings accounts.
Loyalty, therefore, literally doesn’t pay for savers in most cases.
But in a minority of situations it can. While This is Money always recommends readers shop around using our best buy tables, in some cases remaining loyal to one bank or building society can pay off.
Last week, Yorkshire Building Society, the country’s third-largest mutual, announced plans to dish out £16million in the form of higher rates for loyal savers, on top of a £20million boost announced in January.
It means a 0.2 percentage point top-up to many of its savings rates, with easy-access accounts and Isas opened prior to 29 January this year increased to 0.5 per cent or 0.55 per cent last Wednesday.
While some may turn their noses up at such a slight increase, at a time when rates on easy-access accounts barely touch half-a-percent, it is at least a step in the right direction.
The mutual has also launched a pair of accounts solely aimed at existing customers, one paying 0.65 per cent and allowing six withdrawals a year, and a regular saver paying 3.5 per cent on between £10 and £500 of savings a month which can be accessed after 12 months.
Building societies, due to the fact they are owned by their members rather than shareholders, can pay better rates in the form of a dividend. Think of Yorkshire’s giveaway as akin to a £36million payout.
Nationwide Building Society, Britain’s largest, has a target to offer ‘member benefits’ worth £400million a year, in the form of additional ‘value’ provided to its savers and borrowers.
It undershot that target by £135million in 2020-21 after slashing its savings rates, but in its latest financial results chief financial officer Chris Rhodes said he expected the mutual to exceed it again ‘in the medium term’.
Meanwhile, regulations mean at least 50 per cent of their lending is funded by deposits made by their members, which they have to pay for.
Often, it is far more. For example, £33.4billion of Yorkshire Building Society’s £47.9billion in assets, or loans, was funded by everyday savers last year, according to its latest results.
At the same time, as of the end of December it had drawn just £450million in low-cost funding from the Bank of England’s latest Term Funding Scheme, launched last March in a bid to pump cheap money into banks and building societies to keep them lending.
Others, like Nationwide and Coventry, Britain’s second-largest mutual, have drawn down billions of pounds more, but it still pales in comparison to the amount of money they have taken from savers.
Although they differ on what they think it is, Britain’s four major building societies all use their latest financial results to the point to the fact they outperform the market average when it comes to their savings rates.
And Coventry and Leeds, the fourth-largest, paid 1.18 per cent and 1.19 per cent on average, far above the standard market rate. There can also be benefits in the form of lotteries or other giveaways.
|All easy-access accounts||On-sale easy-access accounts||Closed easy-access accounts|
|Building society average (45 providers)||0.26%||0.18%||0.28%|
|Bank average (109 providers)||0.24%||0.12%||0.26%|
|Source: Savings Champion|
Nationwide recently launched its fourth savings lottery in the last 15 months, with a £1million prize fund open to everyone who is or becomes a customer by the of August.
It also spiced up Isa season somewhat after launching an 18-month fixed-rate Isa which offered a £50 bonus to existing customers who transferred £10,000 into it.
The deal, now off-sale, was nothing to sniff at in its own right, beating every cash Isa with a term shorter than three years.
Average rates on on-sale easy-access accounts offered by 45 building societies were a third higher than those offered by 109 banks, figures from Savings Champion show.
When it came to all accounts, both ‘closed’ ones and on-sale ones, building societies still outperformed banks, but only by 0.02 percentage points.
However paying higher rates to loyal savers is not limited to member-owned mutuals.
While major high street banks are happy to pay long-time savers as little as 0.01 per cent, or £1 interest on every £10,000 of savings, some smaller and challenger banks are more equitable.
Ford Money, which funds auto finance lending for the parent car company of the same name, vows to pay existing easy-access savers the same as new ones.
Its flexible saver is currently off-sale at the moment, but the tax-free version is currently available and pays 0.3 per cent.
However, that is lower than the current best buy of 0.46 per cent available from Cynergy Bank.
And Wrexham-based savings bank SmartSave, part of Chetwood Financial Group, also offers preferential or the same offers to its existing customers, which are those who currently hold a fixed-rate savings deal with the bank.
In future this could potentially be extended to all customers who have ever banked with SmartSave, according to its commercial director, Julia McColl.
Although its accounts are currently off-sale to newcomers, the bank, which has a £200million balance sheet, is paying 0.85 per cent on a one-year fixed-rate bond, which would be enough for second place in our best buy tables.
Its other fixed-rate deals pay between 1 per cent and 1.45 per cent on terms of two to five years.
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