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Confession: I used to juggle multiple bank accounts to score the highest savings rates

by The Treasurer on April 18, 2022

A piggy bank to illustrate an old-fashioned bank account

A few years ago I was the proud manager of multiple bank accounts. Pretty surprising, considering I’m hardly the most industrious rodent in the rat race of work.

In this post I’ll talk about how I ended up with so many bank accounts and what I learned.

I’ll also share a few tips to help you secure a better interest rate today.

But first things first – how did managing my savings turn into almost a part-time job?

Work hard-ish, save harder

I’ve never been a very high-earner. And while I’d welcome any chance to change that, my full-time job is foremost a means to an end.

I know not everyone feels this way about work. Perhaps that’s why I’m not promoted ahead of my more ambitious colleagues. (Or maybe I just lack their skills, personality, and brainpower? Don’t answer that!)

Regardless, chasing money in a high-stress job at the expense of living life is not for me. I prefer a lower-paid job I can tolerate to a high-paying role I can’t stand.

Despite my low earnings, like most Monevator readers I dream of retiring early. So I’ve always understood the importance of saving regularly and getting the highest interest I can on my cash.

However my income doesn’t leave me much latitude to be frivolous.

My saving account years

My younger self thought the stock market was a casino. As a risk-averse person, I preferred to stash my cash into a savings account. I wanted a guaranteed return.

In my defence, savings rates a decade or so ago weren’t anything like as low as in recent times.

I got a cool 3% interest in an easy-access Cash ISA. That’s not going to make Warren Buffett sweat, but it was comfortably above inflation at the time.

Throughout the 2010s though, savings rates on standard savings accounts and cash ISAs alike deteriorated. By the end of the decade even 1% easy-access rates were extinct.

Financial forces – ranging from the Government’s Funding for Lending scheme (launched in 2012) to the Bank of England’s low base rate – pressed down on interest rates on cash.

Banks could easily access cheap money, so they had less need to attract savings from the average Joe. Savings interest rates were hammered.

Using multiple bank accounts to up my interest rate

As savings rates on normal accounts began to get embarrassing, I started stashing my cash in multiple bank accounts. This way I could continue to earn a decent overall return.

Oddly enough, while interest rates on savings accounts were low, many current accounts offered higher headline rates to attract new customers.

While even the highest-paying easy-access savings accounts at times paid less than 1%, the best current accounts were offering as much as 5% in interest.

These rates surely weren’t profitable for banks. Presumably some had decided that sending money out the door this way was a price worth paying to expand their total customer base.

The snag?

Opening and profiting from these current accounts was rarely as straightforward as with traditional savings accounts.

Multiple bank accounts, multiple hurdles

Very often the juicy headline rates only applied on relatively small sums, for example.

Some accounts also stipulated you had to pay in a set amount each month to receive the interest.

But these barriers did not deter me!

Over a year or so, I opened numerous current accounts, one after another. I stashed the maximum allowed into each one.

At the same time I was also opening bank accounts to profit from switching bonuses.

To get around any minimum pay-in stipulations, I set up standing orders to move my money between accounts.

For example, if one account required you to pay in a minimum of £500 per month, I’d set up an automatic payment to cycle this between two accounts.

It sounds a faff, but it didn’t take more than half an hour to sort out.

I had multiple bank accounts including:

£2,500 in Nationwide’s FlexDirect account (5% interest)
£2,000 in a TSB Classic Plus account (5% interest)
£5,000 in a Club Lloyds account (4%)
£20,000 in a Santander 123 account (3%)
£5,000 in three Bank of Scotland current accounts (3%)
£3,000 in two Tesco current accounts (3%)

As a result I earned a savings rate far above those offered on normal savings accounts – yet still without risking my savings on anything racier than cash.

Incidentally, I actually had three Bank of Scotland accounts and two Tesco accounts as these providers allowed you to hold multiple accounts.

My investing years

Sadly, these generous current accounts have since disappeared or else they’ve massively reduced their interest rates. The benefit of saving in multiple bank accounts isn’t really a thing anymore.

Once I realised earning a decent return on my cash through interest was no longer possible, I began to think about investing my wealth instead.

Thanks to Monevator, the majority of my money is now in an investing account.

To date, my index tracker funds have earned a far greater sum than I would have made had I saved in a normal savings account.

Of course, investing is a different beast from saving. And there are no guarantees investing will trump returns from savings accounts in future.

Nevertheless, I’m happy I now have a long-term plan for building my wealth, rather than having to juggle ten or more bank accounts!

Three ways to boost the interest rate on your savings today

Despite today’s high inflation, I still like to keep a bit in cash on hand for a rainy day. And I continue to hunt for the best options.

If like me you’re partial to holding some cash, you may be able to boost the interest rate you earn.

Right now, you can earn 1.5% AER variable via app-only Chase Bank. While it’s a savings account, you must first open Chase’s current account to access it.

If you’d rather not open a new bank account, then Cynergy Bank pays 1.2% AER variable, including a 0.9% fixed bonus for 12 months.

If neither of those easy-access options take your fancy, here’s some alternative tips to help you boost the interest rate on your cash:

Tip #1: Lock away your cash

Easy-access interest rates can be dire, but if you’re happy to lock away your cash for at least a year you can easily bag higher savings rates. That being said, if you do opt for a fixed savings account, consider the effects of inflation.

For example, if your money is locked away for a long time and inflation and bank rates spiral, you won’t be able to do much about it.

Going for a one-year fix is a decent compromise. As your fixes roll over, simply re-up them to the best new fixes available.

Tip #2: Consider Sharia savings accounts

Sharia savings accounts can be opened by anyone. They work like normal savings accounts. The only difference is they follow Islamic banking principles.

This means that technically they don’t pay interest. Instead, they pay you an ‘expected profit rate.’

Often these expected rates are very competitive. It can pay to widen your search to include these types of accounts.

Tip #3: Look into regular savings accounts

If you squirrel away cash each month, then regular savings accounts can still offer you a way to earn a higher interest rate. Rates of 2-3% aren’t uncommon, though many of the best deals are tied to a bank’s specific current account.

There are also often limits as to how much you can save each month in these accounts. But some let you stash away up to £500 a month. Not too shabby.

You could well end up with multiple bank accounts spread around to harvest these higher regular savings rates. A blast from the past for me!

Are there any savings tips that I’ve missed? Have you used multiple bank accounts to boost your saving rate? Comment below – and see all my previous articles in my dedicated archive.

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Weekend reading: inflation moves fast and breaks things

by The Investor on April 15, 2022

What caught my eye this week.

I get the impression people are already tiring of the endless inflation talk. But I find it hard to look away.

The stats just keep coming!

This week UK inflation hit 7%. That’s a 30-year high and ahead of most economists’ predictions.

The old RPI measure of inflation is already at 9%. Some pundits think CPI could get close in just a month as energy rises kick in. Even the Office for Budgetary Responsibility forecast a peak of 8.7%, although not until the end of the year.

Unlike much of the financial shenanigans we market nerds get juiced on, high inflation is already hitting everyday life as much as it’s roiling the indices.

Most obviously as the Bank of England raises interest rates – extremely likely to rise to 1% next month and probably to double that by Christmas.

But also in once-benign backwaters, where we were lulled into a false sense of security by years of low inflation and near-zero rates.

Loan ranger

For example, The Institute for Fiscal Studies this week highlighted how high RPI will send interest rates on student loans soaring:

…the maximum interest rate, which is charged to current students and graduates earning more than £49,130, will rise from its current level of 4.5% to an eye-watering 12% for half a year unless policy changes (the interest rates for low earners will rise from 1.5% to 9%).

This means that with a typical loan balance of around £50,000, a high-earning recent graduate would incur around £3,000 in interest over six months – more than even someone earning three times the median salary for recent graduates would usually repay during that time.

The maximum interest rate will later plunge, then rise again. Inflation is measured with a lag and there are other delays before rate rises – and a maximum rate cap – kick in.

It’s pretty complicated, but according to the IFS it should shake out as follows (red line):

The blue line is the IFS’ alternative policy of when to apply a rate cap. It argues for a smoother implementation on the grounds that breathless talk of a loan rate rollercoaster could put kids off going to university. (Though not before it used the word rollercoaster in the title of its own report.)

The whole mechanism is fiendishly complex. And apparently rate rises won’t affect most graduates anyway, as they don’t earn enough to pay off their loans.

See the IFS report for the full details.

Cap in hand

Simon Lambert at ThisIsMoney makes a case for quick action on the cap, regardless of how many graduates will be hit.

Not least because it’s already bad enough we send young people into adult life saddled with huge debts. (I agree).

But a wider point is that none of this mattered too much in a 2-3% inflation and 0-5% interest rate world. With inflation heading to double-digits, the wheels start to come off.

You can readily understand how price and wage spirals get going as different groups call for special measures. I’m also surprised we haven’t heard about massive financial blow-ups yet, given the pace of developments.

Time will tell. For now, enjoy the Bank Holiday weekend perusing another bunch of great reads.

[continue reading…]

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Inflation and stock market performance – when high inflation hurts

by The Accumulator on April 13, 2022

Until recently as culturally relevant as Beanie Babies and as potent as a celery lightsaber, inflation fears are back in the news. But what about inflation and stock market performance? Is it true that equities can always shrug off inflationary environments, while elsewhere in our portfolios bonds sink like a concrete bathing costume?

As investors, that’s obviously the million dollar question for all of us.

[Office boy runs into The Accumulator’s cell at Monevator Towers and hands him the latest inflation print, fresh off the anachronistic press.]

Okay, make that the one million and eighty-thousand dollar question.

Note: All investment returns quoted in this article are annualised real returns. ¹

Inflation made in the UK

Britain has suffered repeated bouts of high inflation throughout its history. You can see the spikes in vivid red in this graph from Economics Help:

A graph of UK inflation from 1860 to 2015.

The worst high inflation shock occurred during World War One. The annual rate of inflation peaked at over 25% in 1917.

The 1970s were similarly grim. Inflation rose to 24.2% in 1975.

Double-digit inflation died away in the 1980s and the monster has been mostly tame since. Until now. (Though there was a 9.5% mini-rampage in 1990, and some brief snarls in 2008 and 2011.)

Inflation and stock market performance: the good, the bad, and the hideous

How did UK equities (and bonds) fare during bouts of high inflation? Behold the horrible history:

A graph showing how UK equities and government bonds perform against inflation.

Source: Sarasin & Partners. Compendium Of Investment 2022. Page 46.

UK equity returns averaged -7% when mean inflation broached 15%. (See the left-hand side of the graph.) The good news is otherwise equities maintained positive growth in the face of inflation.

UK government bonds were slaughtered at an annualised rate of -14% when inflation was very high. ²

This pattern is repeated across 21 developed world markets in this chart:

A graph showing how developed market equities and bonds have fared during different inflationary regimes from 1900 to 1921.

Source: Elroy Dimson, Paul Marsh, and Mike Staunton.
Credit Suisse Global Investment Returns Yearbook. 2022. Page 13.

The inflation numbers dot the dark turquoise line. We can see that equities and bonds suffered devastating real returns of -10% and -25% respectively when inflation averaged 18% or higher – that’s the column on the far-right. ³

However when inflation ‘only’ averages 7.4% or higher, equities eke out a small positive return.

The two graphs above also reveal that rising inflation is correlated with lower equity returns – even when it doesn’t plunge them into negative territory.

The relationship between inflation and stock market performance isn’t always so clear cut though. Equity returns can be stellar in a high inflation environment.

UK equities grew over 32% in 1977 when inflation was 15.8%. And they delivered over 17% in 1980 when inflation was 18%.

Crucially, inflation wasn’t as bad as expected in either year. The market had already priced in high inflation. Equities then surged as investors responded to encouraging news.

Unexpected inflation is the real threat

‘Unexpected inflation’ describes rising inflation rates that are worse than expected.

Definitions differ. But when inflation rises sharply from one period to the next, equity and bond investors should brace for impact.

The next chart shows MSCI World equities losing nearly 2% a month in the worst 25% episodes of higher unexpected inflation:

A graph showing that equities and bonds suffer when unexpected inflation is at its worst

Source: Anjun Zhou, and Karsten Jeske ⁴. Unexpected Inflation Hedging 2012. Page 5.

And now a chart that shows the same lookup, only this time we see a rosier relationship between expected inflation and the stock market.

Notice that equities and even bonds ride out the worst episodes. That’s because high inflation was already in the price:

A graph showing that equity and bond returns remain positive when inflation is expected

Short-term inflation isn’t likely to spook the markets, either. Disruptions that are quickly overcome – such as a tanker running aground, or an attack on a pipeline – do little harm to the long-term outlook.

No, the unexpected inflation environment we should fear is: high, rising, and long-term.

How to beat high inflation

One way to beat high inflation is to invest in asset classes that outstrip inflation over time.

Global equities’ reputation for being an inflation-beating investment rests on the asset class’s historical real return average of better than 5%. That’s comfortably ahead of long-term inflation.

Equities do suffer during bouts of high, unexpected inflation. But you can be relatively sanguine they’ll come out ahead eventually.

The key word is ‘eventually’. The UK’s worst stock market crash smashed equities between 1972 and 1974 as inflation ran riot. It took until 1983 for investors to break even.

In contrast, inflation-hedging is a different strategy. With hedging, we’re looking for assets that deliver high returns when inflation runs riot.

We’ll go hunting for those in the next post.

Take it steady,

The Accumulator

Annualised is the average annual return accounting for gains and losses. Real return is the amount the investment grows (or shrinks) over a period after inflation is stripped out.[↩]
The data sources use long-bond returns. Long bonds fare much worse than shorter duration bonds against inflation.[↩]
Note: This data contains some instances of extremely high post-war inflation.[↩]
That’s Karsten of Early Retirement Now fame.[↩]

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Weekend reading: Will higher rates finally breach the fortress UK housing market?

by The Investor on April 9, 2022

What caught my eye this week.

Last week we talked about the infamously inverted yield curve in the US. Meanwhile here in the UK the Bank of England has already hiked its policy rate to 0.75%. Now policymakers and pundits alike are mulling over how much faster and farther central banks will go.

There are various ways a higher Bank Rate could slow (or worse) the economy. Theories will lead you into a Spaghetti Junction of the money supply – M1, M2, M3 and beyond – or down other half-forgotten cul de sacs.

In the UK though, it’s probably easiest just to think about the housing market.

For good or ill (okay, ill) the UK economy is still geared around property and especially residential homes. A sector that seemingly has been flying through the stratosphere on fumes for decades.

But I believe when something has been seemingly running on fumes for decades, it’s probably better to assume you haven’t properly identified the fuel.

In the early 2000s both politicians and punters blamed supply and demand for high house prices. And I did too, for what it’s worth. Not enough houses were being built to meet demand, we believed. Never mind that rents had failed to soar by anything like the same extent – even though everyone has to live somewhere.

About a decade ago I finally realized that interest rates were all-important. Along with the laxity of bank lending, rates decide how much somebody feels they can pay each month for a property.

Very many home buyers will pay as much as they can manage without totally derailing their lifestyle. They hope prices will rise in time, or if not that their income will. And most pay via a mortgage.

What could go wrong?

Something going up beyond the rent

Take a look at this graph from Capital Economics, as highlighted this week by This Is Money:

The graph suggests that soon mortgage payments will become more expensive than rent. This should not normally be the case, because landlords want to make a profit ¹.

As rates and house prices rise, the monthly payments required to own a home via a mortgage climbs further. The graph forecasts that monthly payments will soon be above their last peak.

Of course, a pound is worth a lot less now, and it will be worth even less by Christmas. But the pressure from rates shrugging off their torpor and struggling to their feet is clear.

Caveats abound. Many people are on fixed-rate mortgages nowadays. Affordability is stress-tested when you get a mortgage. The nice lads on The Property Podcast reckon this cycle has several years more to run as regulations are loosened and banks go a bit crazy.

Also, would policymakers really want to provoke a housing market crash by raising rates too far?

Long ago I used to scoff at such talk as clutching at straws in the face of an elevated market. But actually, presuming policymakers will do all they can to avoid a repeat of the early 1990s housing crash has been a pretty good heuristic over the years. How much higher could Bank Rate go before roiling UK PLC and its stretched populace?

With vast government debt also looming large, you can see the appeal of inflating away these problems by avoiding real yields from climbing too far (aka financial repression).

In such a world, you might think you’re getting finally 4% from your savings account, but you’re forgetting inflation is running at, say, 5%. The real value of your money is still getting gently mullered.

Interesting times. Have a great weekend all!

[continue reading…]

Although that’s yet another truism that’s gotten screwy in the near-zero interest rate years, as landlords in pricey parts of the country have banked on capital returns.[↩]

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