Britain’s traditional banks have lost more than £100 billion in customer deposits over the past year, as savers continue to move their money to online rivals offering higher interest rates and more flexible services. The shift marks a major rebalancing in the UK retail banking landscape and puts further pressure on legacy lenders to adapt.
Digital banks gain ground
According to new figures from the Bank of England, deposits held by major high street institutions fell sharply between July 2024 and July 2025, while challenger banks and fintech platforms reported significant inflows. App-based lenders such as Monzo, Starling and Atom Bank have benefited from offering savings products with interest rates well above those provided by incumbents.
With the Bank of England base rate still at 5.25%, consumers have become increasingly selective about where they park their cash. In many cases, digital banks have offered savings accounts with rates above 4.5%, while some high street names have failed to keep pace, prompting mass outflows.
Trust and technology shift habits
Analysts say the trend reflects more than just rate hunting. A generational shift in consumer behaviour, driven by smartphone usage, real-time notifications, and app-based control, has eroded the traditional advantage held by bricks-and-mortar banks. The pandemic accelerated this digital adoption, and many customers have not returned to in-branch banking.
Trust in new entrants has also improved. Where once consumers were wary of lesser-known brands, now many are prioritising convenience and value. FSCS protection for up to £85,000 per depositor per bank has further reassured customers moving to digital institutions.
Impact on incumbents
The loss of deposits poses challenges for the UK’s biggest banks, which rely on retail funding to support lending and maintain balance sheet stability. HSBC, Barclays, Lloyds, and NatWest have all reported declines in their deposit bases over the past two quarters, with analysts warning of increasing competition for funding.
While high street lenders have improved their digital offerings, critics argue they have been too slow to respond to changing expectations. In particular, low-yielding current and savings accounts continue to frustrate customers seeking returns in a high-rate environment.
Regulatory and competitive pressure
Regulators are watching closely as competition intensifies. The Financial Conduct Authority (FCA) recently published new guidelines requiring firms to offer customers fair value on savings products. Several legacy banks have been instructed to review their pricing models amid accusations of profiteering during the rate-hiking cycle.
As deposit competition tightens, some industry observers expect further consolidation in the challenger space, with larger fintechs potentially acquiring smaller rivals to scale operations and expand product lines.
REFH – Newshub, 4 August 2025
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