Meanwhile, local businesses have been relying on our commitment to keep them going through the endless restrictions and lockdowns. But while loyalty matters close to home, in the wider world, it doesn’t always pay. In some cases, it means we stick with something long after it stops making sense financially.
In November, NS&I unleashed brutally savage rate cuts to its easy access savings accounts. In among them, the most competitive product on the market was slashed from 1.16 per cent to just 0.01 per cent.
It should have seen a wholesale exodus, as we took every penny of our savings somewhere more rewarding. In fact, in October and November, we pulled £6.8bn of our cash out of s – less than a sixth of the cash we’d poured into the organisation during the pandemic.
It’s not much of a reaction. It’s like six people coming home to find their sofa has vanished, and five of them saying: “This is fine, I’d always thought that sofa was overly comfortable anyway. I’ll just settle myself down here on the floor.”
Part of the issue is that NS&I inspires an extreme level of loyalty. We asked people what it was about the organisation that made it so hard to leave, and aside from those who were hoping to become Premium Bond millionaires, it came down to two things: safety and trust.
It’s hardly surprising. Anyone who lived though the financial crisis is always going to prioritise these things, and because all money held with NS&I is 100 per cent backed by the Treasury, it feels particularly reassuring. The only situation in which you’re not going to get your money back is the collapse of a Western democracy, which even now seems like a reasonably remote possibility.
But it’s vital not to overlook the safety net provided for every UK bank account through the Financial Services Compensation Scheme. It means that even if the worst was to happen, as long as we don’t have more than £85,000 with any one financial institution, we’ll get our money back.
This is a definition well worth getting to grips with, because various banking brands may well be part of the same group. The FCA, Which, and Money Saving Expert all have lists of brands from each bank. They show, for example, that Santander also owns Cahoot, so it’s important that the combined total you hold in both banks doesn’t bust the £85,000 limit.
But focusing our anxiety on a concern that the banks could go bust, means overlooking the most common way people actually lose money in savings accounts. If your account pays less than inflation, you’re losing some of the value of your money every day. The inflation rate may be low at the moment, but any account paying 0.01 per cent – whether it’s NS&I or a high street saving account – will be sucking the spending power from your money.
We’re loyal to NS&I, but it’s not the only bank we have a terrible habit of sticking with. The FCA studied the savings market a few years ago and found that only 15 per cent of easy access accounts had been switched at all in the previous three years. It has tried to encourage people to move.
It even named and shamed the accounts offering the lowest rates, and yet still it admitted people weren’t switching.
Its most recent bash at solving the problem was in 2018 when it suggested a basic savings rate, which meant all banks would be able to offer introductory rates for 12 months, and then everyone with money in the bank would be moved to the same basic savings rate for life. However, it recently announced it was shelving this plan too, because it has other priorities right now.
We asked people why they stayed so loyal to their bank, and beyond NS&I, we’re not really driven by an undying loyalty. It’s more about the fact we see switching as a bit of a hassle, and the low rates generally on offer at the moment make us think it’s not really worth the bother.
It’s perfectly understandable. Nobody is ever going to get excited about a 1 per cent savings rate on a one-year fixed rate account. However, when you consider 1 per cent is actually 100 times the interest available on a high street easy access savings account, and it can help you stay ahead of inflation, then it’s worth making the effort to switch.
There’s never a good reason to stick with a bad savings rate. So whether you’re being held back by inertia or loyalty, now is the time to move your money somewhere more rewarding.