CLIENTS have been voicing their concerns around low or, in many cases, non-existent interest rates applying to their cash deposits for many years.

With inflation at a 40-year high and the expectations of this increasing further in the coming months, income earned on savings and investments has never been more crucial.

It has been encouraging to see banks increase interest rates on their savings products, but this requires action from their customers, as most current accounts still offer next to no returns.

That being said, we are now seeing banks and building societies introduce small offers on current accounts.

For example, Nationwide’s FlexDirect account offers 5% interest on balances up to £1,500 for the first 12 months.

Thereafter, the account pays 0.25% which sadly dashes the optimism, but 5% interest on £1,500 equates to £75, which is far higher than interest many people have received in recent years.

Many banks are now following suit, such as Virgin Money who offer 2% on balances up to £1,000.

Will the change encourage more customers to join Nationwide?

May be so, but you have the suspicion that there are far more powerful forces at work for the British banking industry than just 5% on the first £1,500.

It is a well-known truth that as banking progressively moves online and onto our mobile devices, the number of bank branches in the UK has almost been cut in half since 2015.

The new “challenger banks” (also often called “neobanks”) are posing a growing threat to traditional banks. In the world, 27% of consumers have a relationship with a neobank, according to a recent EY survey with 37% of these consumers aged between 18 and 34 and rapidly gaining ground in all age groups.

The traditional banks have historically excelled in two major business segments: accounts and lending.

However, as neobanks gain a footing in other sectors (like payments), the traditional banks may find it difficult to retain their current market share with younger consumers remaining open in developing relationships with a variety of financial product supplier and institutions.

But in the work of ever change, what was the prime reason for choosing a product provider, whether it was a traditional bank or a neobank?

According to the EY survey: ‘Trustworthiness and personal relationships are the most important factors, outweighing product impacts.’

In the other words, although Nationwide’s current account interest rate of 5% may seem alluring on the surface, what will actually motivate a customer’s relationship with a financial provider is trust and interpersonal connections.

Some things will never change, and we take great solace in that as Financial Planners who have always been proud of our relationships with our clients and the trust we foster with them, including helping them find a better home for their hard-earned cash.

Should you be concerned about the effects of inflation vs interest rates on your cash held on deposit, please do not hesitate to contact us; we are always more than happy to help or to explore suitable cash platform solutions which offer higher rates of interest than high street banks with the added security of full FSCS protection.

You can contact Future Life Wealth Management by ringing 01246 435996 or simply click HERE.