Savers missing out on £7bn of interest by sticking with the big banks, research suggests

Consumers stick with large high street lenders despite much better rates available elsewhere

Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander hold £827bn of the £1.3 trillion in UK household deposits (PA)

Savers are losing out on £7bn of interest by failing to switch from the big banks to smaller rivals, research has found.

Despite a number of challenger banks springing up and regulators’ efforts to make it easier to switch providers, the big five lenders maintain a stranglehold on consumers’ savings.

Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander hold £827bn of the £1.3 trillion in UK household deposits, according to the Centre for Economics and Business Research.

The economic consultancy’s report for cash deposit platform Flagstone found that the big banks are offering a maximum of £3.4bn of interest on the amounts in instant access and fixed-term deposit accounts.

If savers switched to the best rates available, they could earn up to treble this amount, an extra £7bn, the report found.

For example, research shows the best deal on an instant saver with the Big Five banks pays 0.4 per cent, while Virgin Money offers 1.5 per cent on its e-saver easy access account.

The Centre for Economics and Business Research said consumers are guilty of “widespread inertia” and are reluctant to shop around for the best deal.

More than 40 per cent of savers said they would be tempted to switch accounts if offered an extra one percentage point on their savings, according to a poll of 4,207 people by YouGov.

The report said, given that most challenger bank accounts offer rates at least one percentage point higher than their Big Five rivals, this suggests many savers are either not aware of the better deals on offer or are put off by the hassle of switching.

This reluctance to switch means £170bn is still languishing in zero interest accounts – up from £33bn since 2008, and accounting for 12 per cent of the UK’s household cash deposit market.

Andrew Thatcher, cofounder and co-managing partner of Flagstone, said: “This study reveals the high levels of inertia in the cash deposit market and the challenges that non-high street banks face in raising deposits.

“Consumers continue to tell us that price is an important factor in choosing where to place deposits, and this is borne out in the study. But despite challenger banks offering significantly higher rates than the high street banks, switching is not occurring at a fundamental level.”