How do savings providers make money?
What to watch out for when chasing top rates
There are an increasing number of savings providers out there, with established banks and building societies often being outflanked by newer, smaller platforms. Most savings accounts offer interest rates – paying you to hold your money with them – but what do banks get in return?
How do banks make money from your savings?
Banks are businesses. They’ve got staff, tech systems, branches, and many have shareholders to keep happy. Paying you interest is a cost to them – so they need ways to cover that and still turn a profit.
Here are the main ones:
Interest on loans. Banks lend money to individuals and businesses at higher rates than they pay savers. They don’t just hand your deposit straight to a borrower, but your deposits help them meet rules that allow more lending.
Reserves with the Bank of England. Banks hold money with the Bank of England and earn interest at the base rate. If your savings account pays less than that, the bank pockets the difference.
Partnerships. Some accounts will partner with businesses to advertise products to you. Some savings platforms will also partner with more established banks to advertise their savings products to you.
Monetising customer data. Some banks and platforms sell information such as customer transaction data to businesses, to help inform them on who to market their products to and how. This is likely to be anonymised and aggregated (so businesses only get a sense of how broad groups behave) and requires your consent (you should be informed through the account's terms documents).
Some savings accounts will be a net loss for providers
Some of the top-paying savings accounts are what’s known as “loss-leaders”. In plain English, they actually cost the provider money. The aim isn’t to profit directly from the account, but to lure you in so they can make money elsewhere – whether that’s through fee-charging current accounts, loans, investments or wider money management products.
It’s the same tactic you see with big bank switching bonuses. Banks often hand out cash upfront with the hope that they’ll claw it back later, either through overdraft charges, packaged account fees or by selling you a credit card or mortgage.
There’s nothing inherently wrong with this – you’re free to take the deal and run. Just remember: if a rate looks unusually generous, the provider’s banking on making their money back from you in some other way.
Do banks lend out your deposits?
Not exactly. When banks lend, they create new electronic money – they don’t just shift your deposit across. Theoretically, banks can lend much more out than they hold in customer deposits. But deposits still matter, as they help banks meet strict capital and liquidity rules set by regulators which ensure they can cover unexpected losses or high withdrawal demand.
Are my savings safe?
Yes – if they’re in a UK-regulated account. You’re protected up to £120,000 per person, per banking licence by the Financial Services Compensation Scheme (FSCS). Go over that and the excess isn’t covered, so split large sums across different providers. Check if your provider is covered here.
Important: Some brands share a banking licence (eg Halifax, Lloyds and Bank of Scotland). Together, they only give you one £120k pot of protection.
Do banks make money from uninvested cash?
Banks will often hold reserves with the Bank of England, which pays interest on those reserves at the Bank of England base rate (currently 4.25%). This is part of its monetary policy – it’s aimed at influencing the rates banks offer for savings and loans to control inflation.
When banks offer savings accounts with interest rates lower than the base rate, they can profit from the difference between what they pay savers and what they earn on reserves.
This mechanism is also used by some savings and investment platforms, which may retain interest earned on unallocated customer funds or funds held temporarily in holding accounts.
You should be chasing savings rates as close to the bank of England base rate as possible, the lower your rate, the more profitable it is for your bank.
How do building societies work?
Building societies are owned by their members (that’s you if you’ve a savings account or mortgage with them). No shareholders to pay means profits are recycled into better rates or services.
By law, at least 50% of their funding must come from savers’ deposits – so your money is more directly tied to the mortgages they issue than with banks. Though the rules were tweaked in 2024 to exclude some types of funding from these rules.
How do savings and investment apps make money?
App-based savings providers are a relatively new phenomenon, and they often dangle higher rates than traditional banks. They can afford to because their running costs are lower than more traditional financial institutions– no branches, fewer staff, leaner tech.
Sometimes these accounts are also loss-leaders, designed to hook you in so you’ll use other, more profitable services – eg, investments (which carry platform or trading fees) or paid subscriptions.
The savings accounts themselves are usually free, but the trade-off may be fewer service options and nudges towards pricier products. Again, there’s nothing wrong with this – you won’t be forced to open any of these products (and the savings accounts we feature will always be free unless explicitly stated otherwise) – but it’s worth bearing in mind that there may be some compromises.
In short, yes – though as they aren’t banks, they offer deposit protection slightly differently vs traditional banks. Usually, customer deposits are held in ringfenced accounts with fully regulated UK banks which are eligible for FSCS protection up to £120,000. Some hold these deposits in accounts across multiple banks.
Recently, some savings providers have opted to hold customer deposits in ‘qualifying money market funds’ or QMMFs. These are low-risk investment vehicles, typically comprised of assets such as government bonds. They may allow these providers to receive a greater return from deposited money (which in turn allows them to offer higher interest rates).
While this type of holding can be covered by FSCS, the FSCS couldn’t confirm this to us 100%. It told us that it depends on a number of factors and that it determines whether FSCS applies on a case-by-case basis. So if we ever feature an account like this, it’ll be in a separate section with terms clearly set out.
Are my savings protected?
What are savings platforms and how do they make money?
We've recently started featuring ‘savings platforms’ - eg, Raisin, Hargreaves Lansdown, Prosper, Flagstone - in our savings best buys. These let you open and switch between multiple banks’ accounts in one place. Rates are often as good as, or better than, going direct, and the idea is you can chase top deals without endless paperwork. So how do they profit if they don’t usually charge you fees?
-
Commission from banks. This may be a fee per customer signed up or a percentage of an interest rate.
-
Interest on uninvested cash. Not all do this, but if you park money on the platform while waiting to pick a bank, it’s ringfenced in a UK account (so FSCS applies). Some platforms keep the interest earned on this uninvested cash.
What to watch out for when chasing top rates
With savings accounts, the higher the interest rate, the more your money works for you. If you go for a top easy-access account, you’ll need to keep an eye on your interest rate as banks offer variable rates, meaning they can change at any time.
High rates can also sometimes come with caveats, where the account may be designed to increase potential for profitability or encourage certain customer behaviours. Here are a few things to watch out for:
Short-term interest rate bonuses: Many top rates are boosted with 6- to 12-month bonuses to attract new customers. On the plus side, they bonuses are often fixed-rate (meaning you’re guaranteed the bonus for a set period). But they do this knowing that many people won’t bother to switch when the bonus ends and the rate drops. So set a diary reminder to ditch and switch.
Accounts with maturity dates. Some “easy-access” deals quietly end after a year or two, automatically rolling you into a poor-paying holding account. Providers should warn you – but don’t rely on it. It's often an easy way for providers to keep your money while paying out less interest.
Hidden fees and pricing tiers. Rare with savings accounts, but some investment/savings platforms have tiered pricing. MSE-featured accounts are always free unless stated.
Restrictions and high minimum deposits. Limits on withdrawals or requiring more money upfront make your savings less volatile. In other words, it helps the provider plan lending and investment, and reduces the risk of you pulling cash out suddenly.
Partnership deals. Providers will sometimes partner with external business to advertise products or offer deals on the app or online service you hold your savings account with. They will typically be paid each time you open a product based on their recommendation.
Data monetisation: It may be buried in the terms and conditions of the account, but some providers monetise anonymised customer data (eg, spending or saving behaviour) because it’s valuable to businesses for marketing. It also helps them cross-sell their own loans, cards, or investments.
FAQs
Spread it. Split large sums across different banks/building societies with separate licences where you can.
They’ve lower costs and want to attract customers fast. High rates don’t necessarily mean your money is unsafe, just make sure the provider is covered by the FSCS.
Most don’t. Thanks to the personal savings allowance, basic-rate taxpayers can earn up to £1,000 interest tax-free each tax year (£500 for higher-rate taxpayers). If you’ll go over, consider an ISA. Read more in our guide on how savings tax works.
What happens if I’ve more than £85k saved?
Why do smaller/newer providers pay more than big banks?
Do I pay tax on savings?
Share this guide?
