Savings Platforms: A Tool to Maximize Interest Earnings

Many consumers are aware that savings rates have increased, yet they continue to keep their money in low-interest accounts due to inertia or the perceived hassle of managing finances. This inaction leaves an estimated £338 billion across 51.3 million savings accounts earning 1.5% or less, according to research from the savings app Spring.

Savings platforms, which began appearing in the UK about a decade ago, aim to address this by simplifying the process of finding and switching to better-paying accounts. They offer a single login to compare rates from multiple providers, allowing users to distribute their funds without directly engaging with each institution. These platforms typically feature smaller, newer banks rather than high-street names like Barclays and NatWest.

These platforms are particularly beneficial for individuals who do not actively track best rates, tend to keep savings in low-interest accounts or current accounts, and are comfortable distributing their money among smaller, often challenger, banks. Conversely, they may not be ideal for those who are already diligent about switching accounts, seek the absolute highest rates directly from providers, prefer traditional high-street banks, or are interested in higher-risk investments.

Several savings platforms are available in the UK, including Aviva Save, Flagstone, Hargreaves Lansdown Active Savings, Prosper, Raisin UK, and Savings by Moneysupermarket. While the core functionality is similar, the specific accounts and rates offered can vary. Factors like sign-up bonuses, cashback offers, and whether the platform is app-only can influence a user's choice. Some platforms partner with over 65 banks, while others offer a more limited selection. Minimum deposit requirements also differ, with Flagstone, for example, requiring £10,000 to start.

Top rates available through platforms include an easy-access account at 4.15% via Raisin UK (provider: Whiteaway Laidlaw), a one-year fixed account at 4.92% via Hargreaves Lansdown Active Savings (provider: National Bank of Kuwait), a two-year fixed account at 4.96% via Raisin UK (provider: Shawbrook), and a five-year fixed account at 5.02% via Raisin UK (provider: Atom Bank). For cash ISAs, Hargreaves Lansdown offers an easy-access rate of 4.52%.

Savings platforms can significantly increase returns by enabling easy switching to top rates. Research suggests that consistently switching to the best easy-access rate on Hargreaves Lansdown's platform could yield £806.98 in interest over a year, compared to £438 by sticking with average rates, and a mere £190 from the average rate offered by major banks. This consistent optimization is crucial, especially when inflation erodes the real value of savings.

While platforms offer convenience, the rates might be slightly lower than direct offerings, as platforms typically charge providers a fee. This is a trade-off for ease of use and consistent access to better rates. Platforms may also earn revenue by taking a portion of the interest or retaining interest on uninvested cash in holding accounts.

Admin is another area where platforms offer benefits, particularly for tax reporting. Instead of collecting interest statements from multiple banks, users receive a single consolidated tax certificate from the platform, simplifying tax self-assessments. A single identity check is also required, rather than multiple checks for individual providers.

Financial protection is a key feature. Under the Financial Services Compensation Scheme (FSCS), money is protected up to £120,000 per institution. Platforms facilitate spreading large sums across multiple providers, ensuring full FSCS protection. It is important to note that some platforms feature European banks covered by the European Deposit Guarantee Scheme, which offers protection up to €100,000.

However, there are disadvantages. Withdrawals can take one to two working days due to the extra steps involved (bank to hub account to current account). Some platforms have higher minimum deposits, and users do not have a direct relationship with the underlying banks, relying instead on the platform's customer service. For fixed-rate accounts, annual interest may not be automatically reinvested, requiring manual action to benefit from compounding. Additionally, not all platforms offer joint accounts, limiting options for couples saving together.

Money deposited with a savings platform initially goes into a 'hub account'. This holding account is separate from the platform's assets and is typically provided by a major bank. While FSCS protection applies to the bank providing the hub account, it is advisable to move funds out of this account promptly to earn interest and ensure protection under the specific savings provider's license. The FSCS protection applies per banking license, meaning brands operating under the same license share a single £120,000 protection limit.

Some platforms also offer Cash ISAs, which function similarly but are managed as separate, tax-free accounts. Funds cannot be directly transferred between standard savings accounts and Cash ISAs due to regulatory requirements. The process involves depositing into the hub account and then distributing funds among various ISA providers to secure the best rates within the ISA wrapper.