Are easy access accounts “easy” enough right across the board?
By Jerry Young (pictured), CEO, ieDigital.
We are increasingly living in a world defined by instant gratification – with personal finance standing out as one of the prime examples of this.
Previous generations, largely because access to credit was far more difficult, were much more inclined to earn money and save it before spending, thus experiencing “delayed gratification”. However, with the advent of credit cards, personal loans, and all manner of personal and business credit sources, together with ever-evolving sophisticated e-commerce platforms, has come a generation much more likely to want things now, with a mindset that is increasingly defined by instant gratification.
This approach has trickled down into a variety of activities, including the way we consume our television programmes. The ability to watch the outcome of all drama cliffhangers is now instant thanks to the availability of boxsets. Likewise, we can satisfy our fast-food cravings at any time of the day or night too.
However, what about our personal finances? How has the concept of instant gratification affected the way we manage these?
“Instant” finances
One of the products of the digital age has been the ability to sort your finances out “now”. Not tomorrow, in person, on a wet and wind-swept high street – but literally now, armed with a laptop or mobile phone, in the comfort of your own home. Indeed, it is not unknown for the websites of banks or building societies to crash the moment that Money Saving Expert, Martin Lewis, advises people where to find the highest-interest savings accounts of the day to be found.
In much the same way, the rise of “easy access” savings accounts is fuelling our desire for instant financial gratification. These are accounts that are linked to a current account and allow for unlimited withdrawals with no penalties, with the cash usually transferred to the current account immediately. These easy access savings accounts pay on average – although not always – a higher amount of interest than a standard current account.
However, interestingly, a recent survey revealed that around a third (34%) of people with savings hold most of these savings in a current account, despite the often lower interest rates. Current accounts are associated with easy access – they must be. The need to instantly withdraw cash, pay a bill that has been forgotten about, or shift money around as needed is an essential part of modern life.
Not-so-easy access
There are a host of savings accounts which cannot, under any circumstances, be defined as easy access.
Whether they require savers to give a specific notice period if they want to withdraw, which can be as much as 120 days, or the number of withdrawals is limited to just a few each year, the savers’ money is certainly not available instantly. To add into the mix, there are also fixed term accounts, where savings cannot be touched for a specific period, which might range from six months to as long as five years.
Furthermore, research shows that there is a significant amount of people – of all ages – who prefer to use a physical passbook, which involves accompanying it to branches, to withdraw or deposit savings.
Crunching the numbers
At the time of writing, the top paying easy access savings account, according to Martin Lewis’ Money Saving Expert website, pays 5.2 per cent. The top notice-giving account pays 5.55 per cent, in return for providing 120 days’ notice. The top fixed-term accounts, where you essentially lock your money away, provides 5.61 per cent for locking it away for six months, 5.79 per cent for nine months, 6.2 per cent for one year, 6.05 per cent for two years and 5.95 per cent for three years.
It is, of course, up to individual savers to decide which route they want to go down, either through their own research or on the advice of a financial advisor. However, at the time of writing, the rates on offer for the notice-giving and fixed-term accounts are not particularly higher than what can be found for the easy access options.
Is this potentially more evidence that the banking and savings sector is being influenced even more by the instant gratification trend?
Embracing a digital culture – alongside the traditional approach
Analysis of statistics contained in the Building Society Association (BSA) handbook shows that overall, members with a low digital maturity are tending to see a lower increase in assets. Some even reported an overall decrease.
The BSA itself states on its website that there is a common agreement that modernisation of technology is mandatory to enable cost effectiveness and to ensure customer satisfaction.
Indeed, it is worth emphasising that in 2022, more than 90 per cent of adults in the UK used digital banking. That is a lot of people. However, as we have seen, there are those who still value account specifics such as a passbook.
The lesson is clear. It is straightforward for digital functionality to sit alongside the traditional passbook, in-person, or paper-based systems. This means that banks and building societies are reaching out to those who prefer instant financial gratification, and those who prefer delayed financial gratification.
Conclusion
Instant gratification is increasingly becoming part and parcel of our financial lives, as is the use of digital banking channels.
However, there remains a significant number of people who prefer the passbook-based approach. If they feel comfortable with this, it is of course up to them, and financial services providers should absolutely honour their wishes. However, there is no reason that digital channels cannot sit alongside these more traditional methods. By doing so, providers will be much more able to tap into the instant gratification trend that we are seeing all around us, a trend that is expected to skyrocket in the coming years ahead.
