Technology has changed the savings market, but should you change the way you manage your savings to keep pace?
At the turn of 1981, when HL was founded, the Bank of England (BoE) interest rate was 14%.
At these levels, getting a good return on your cash savings would have been relatively easy. Even if, with inflation at 13%, the value was quickly crumbling.
But changing your savings to get a better deal would have involved visiting multiple banks to find the best deal and opening accounts. Most likely in person. A lot has changed in the market since then.
Online banking began in the late 90s, allowing people to start managing their money over the Internet. This has started a change in behavior, as some big banks now see up to 90% of transactions done digitally.
The digital road has allowed other online-only brands to enter the savings space.
Comparison sites have also evolved, allowing people to compare different accounts and rates in one place. Then came open banking, allowing app-based banks to offer third-party savings products, without providing products themselves.
But perhaps the best development has been the emergence of savings platforms. These allow you to choose savings products from different banks and building societies and also manage them in one place, usually online. This means you spend less time requesting products and don’t have to configure different sets of security information to stay on top of everything.
Does it change the way you manage your cash flow?
The rise of digital channels has made it easier to compare, open, and manage savings products so that you can hopefully get a better return on your money. But a lot of people don’t take advantage of it and potentially miss out on huge amounts of interest.
So, do you also have to consider how you manage your cash savings?
Gone are the days when you left your money in a large account and got a good return. Since the BoE cut interest rates last year, the big banks have cut rates to the bone. Lots now pay as little as 0.01% AER / gross * on their Instant Access accounts.
The high levels of uncertainty over the past 18 months have accelerated the flow of cash into easily accessible accounts. This is despite rates falling to the floor at the same time. The average is now only 0.11%.
But much better rates are available in the market, and they could be higher than you think.
At the same time, the amount of fixed-term contracts decreases. Fixed terms usually pay a better rate than easily accessible accounts, but you normally can’t withdraw your money until they end.
Don’t put all your eggs in one basket
Leaving all of your money in low interest rate accounts exposes it to the full force of inflation, which means your money loses value over time. So you have to ask yourself if you need to access all your savings at the same time. Building a portfolio of savings products could help you get a better return, while still having access to some of your money when you need it.
Having money in an instant or easy access account is a good idea to cover emergencies. We believe you should have at least three to six months of expenses set aside to cover the unexpected if you are working. If you are not working or if you are retired, we believe you should hold a value of one to three years. But you may not need all of your money in these accounts.
Find out more about the amount of money to hold
What could your savings portfolio look like?
A savings portfolio could be the answer to increase your returns and limit the impact of inflation. You can choose a mix of easily accessible and fixed term accounts to get a better overall rate, while still having quick access to some of your money. You can usually repair in a matter of months, up to five years, although you usually don’t find that much choice with the big banks.
You can use fixed terms to get your money back when you think you need it. For example, if you have a big bill coming in just over six months, a six month fix will get you to your money on time. And by locking it, you are less likely to confuse it with the rest of your money.
Or you can be very savvy and choose a lot of fixed terms of different lengths so that you have money coming back to you on a regular basis.
Build your portfolio hassle-free
You don’t have to go to separate banks to get a wide selection of products. Active savings can help. Choose and mix savings products from many banks and building societies with just a few clicks. Find the right mix of products for you and manage everything together in one online account.
You can choose from easily accessible products or fixed terms, ranging from a few months to five years, all with a few clicks. Products are being added and removed all the time, so check our website for the latest available.
The big banks offer instant access products that allow you to access your money immediately. Active Savings offers easy-to-access products and withdrawals typically take one business day.
Learn more about active savings and get started in minutes
This article, like the Active Savings Service, is not personal advice. If you’re not sure what’s right for you, seek advice.
* AER (Annual Equivalent Rate) – The AER indicates what the expected interest rate / profit rate would be if it were paid and compounded once a year. It helps you compare the rates of different savings products.
Gross – the interest rate without any tax removed. Interest / profits are paid gross. You are responsible for paying any taxes owed on interest / profits that exceed your personal savings allowance to HM Revenue & Customs. Tax treatment may change.
The Active Savings Service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorized by the Financial Conduct Authority under the Electronic Money Regulations 2011 with reference 901007 for the issuance of electronic money.