Bank inertia costs UK savers £12bn a year in missed interest

More than five banks offer switching incentives, largest at £220

Almost two-thirds of British savers have remained with the same bank for more than a decade, according to new research from Hargreaves Lansdown, which estimates the financial cost of that inertia at roughly £12bn a year in missed interest.

The findings come from a survey of 3,000 British adults conducted in August by Hargreaves Lansdown, the financial services firm. It found that 34% of respondents had moved their money in the past 12 months. The firm based its £12bn annual cost estimate on analysis of Financial Conduct Authority data.

More than five UK banks are currently offering incentives to switch, with the largest bonus at £220. Banks are competing to attract customers who have remained with the same institution for years, whether out of loyalty, habit, or concern that switching will be cumbersome.

Simon Belsham, Hargreaves Lansdown’s chief client officer, said: “Millions leave their cash with the same bank by default and that inertia is worth a fortune to banks, while costing British savers billions of pounds a year.”

Belsham added: “Savers clearly care about rates: when they move their money, the overwhelming reason is to secure a better return. What holds them back is the effort of repeatedly finding, opening and juggling different accounts.”

Sarah Coles, head of personal finance at AJ Bell, said people are “incredibly loyal” to their bank, which is why competitors need to offer sweeteners to attract them. “It’s worth it for the banks, because they then have a captive audience, who are more likely to take other products from them,” she said.

Coles said the switching bonus should be the “cherry on top” and that people should not overlook other factors such as the bank’s reputation for service, overdraft charges, and the savings rate it offers. Many deals are conditional on meeting requirements such as a minimum amount of money being paid into an account in the first few weeks or a minimum number of direct debits leaving it.

Switching banks will show up on a person’s credit report, which lenders use when deciding how much money to lend for a mortgage. Opening multiple accounts in quick succession could affect a credit score, though closing an old account may boost it. “If you’re planning to apply for a loan or mortgage in the next 12 months, you may want to wait until the deal is done,” Coles said.

The UK has a free Current Account Switch Service (CASS), which over 50 banks and building societies have signed up to. Under the service, customers tell their new bank their chosen switch date — allowing seven working days — and the service transfers payments, moves the balance, and redirects incoming payments such as salaries or benefits. The old bank closes the account. If anything goes wrong, customers are refunded any interest and charges made on either account.

Customers would need to manually transfer recurring card payments, such as subscriptions, and should download old bank statements before switching, as these will not be accessible after the move.