Are you losing out by sticking with the big banks?

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    It’s not an unreasonable starting point to think that in business and finance, bigger is generally better. The sheer size of some companies enables them to drive economies of scale, which then enables them to price their product or service competitively, whilst continuing to provide acceptable levels of returns to shareholders. You might consider Tesco, Primark, Amazon or Superdrug in this category, for instance.

    These economies of scale are not always used to drive the best deal for all customers though. Some industries rely on the lethargy of their huge customer bases to enable them to charge higher prices, and then give better deals to customers who query this; Insurance companies often offer better rates to new customers than to existing ones, and magically find the ability to reduce a quoted rate when a customer threatens to move to a competitor. Gas and electric suppliers are also often criticised for allowing some of their longest-serving customers to remain on expensive (and more profitable) tariffs, without making sufficient effort to advise those customer that cheaper tariffs are available if only they were to ask.

    Surely the big banks do the best for their customers? And if not, do customers vote with their feet (and their business)? Whilst banks often offer up to £200 to switch banks, and this has never been easier to do thanks to the ‘current account switching service’ , take-up is still disappointingly low. Indeed, research in 2015 showed that people were more likely to get divorced than to change their bank account.

    The big banks often offer some of the lowest savings rates as well - meaning that they can harness the lethargy of their customer base to help maximise their profits. The big advantage banking customers have, however, is that they can move some of their business elsewhere; if moving a current account sounds like too much hassle, there’s no reason why savings or ISAs can’t be moved elsewhere to get a better rate. There are plenty of websites that will provide information on the best savings rates available such as MoneyFacts, MoneySuperMarket, and CompareTheMarket – and a few minutes spent on these websites will show just how much more interest your hard-earned savings could be earning for you.

    You can find out more about Castle Trust’s Fortress Bonds, and the rates available, by viewing our Investments Information page.

    Jeremy Stevens
    Investment Marketing Team

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