Bank of England figures show UK savers are missing out
Brits are missing out on £12billion a year in interest because hundreds of billions of pounds are being left sitting in accounts that pay nothing. An eyewatering £306billion is languishing in non-interest-bearing bank accounts, according to the latest Bank of England figures.
That means savers could collectively be more than £12billion a year better off if the money was moved into accounts paying around 4%. The figures expose the staggering cost of failing to shop around for a better deal – with millions potentially allowing their banks to benefit while their own savings earn precisely nothing.
The revelation comes as banks face growing political pressure over their bumper profits, with calls for a windfall tax on the sector. Now the latest savings figures show the other side of the banking boom – the enormous sums of cash being held by customers at rates that barely reward them, or not at all.
The Bank of England data shows households deposited a further £1.1billion into non-interest-bearing accounts in July alone. The problem does not stop with accounts paying zero interest.
Almost £911billion is sitting in easy-access savings accounts, but these pay an average of just 1.6%, according to analysis by AJ Bell. By contrast, the best easy-access deals can pay up to 4.55%.
There is also around £259billion in fixed-rate savings accounts, paying an average of 3.7%, while Cash ISAs contain around £483billion, paying an average of 3.3%. Sarah Coles, head of personal finance at AJ Bell, said: “Saving is hard work.”
She said households were working hard to put money aside despite rising prices, but warned that where they were putting their cash “leaves something to be desired”.
“There’s a huge pile of cash sitting in accounts paying no interest at all – an eyewatering £306 billion, which is up £6.9 billion in a year,” she said.
“If this money was shifted into easy-access savings accounts earning 4% in a year, we could collectively be over £12 billion a year better off.”
The warning is particularly stark because savers are potentially losing money in two ways. Not only are they missing out on interest, but inflation can gradually eat away at the spending power of cash left sitting in an account.
Ms Coles said: “Leaving this money languishing in your current account, or sitting around in ancient savings accounts paying nothing, means your money is less and less valuable with each passing month. We need to escape the current account trap and move money into savings or investments.”
The message for savers is brutally simple: check what your money is earning. Those who need cash for emergencies should consider an easy-access account so they can get to it quickly.
For money that will not be needed immediately, fixed-rate savings can offer a higher guaranteed return in exchange for locking the cash away for a set period. And there can be a huge difference between the rates offered by different banks.
AJ Bell says savers can find easy-access accounts paying up to 4.55%, while some fixed-rate deals offer around 5% over three or five years. Tax also needs to be taken into account. Basic-rate taxpayers can earn up to £1,000 in savings interest each year before paying tax under the personal savings allowance.
For higher-rate taxpayers, the allowance is £500, while additional-rate taxpayers get no personal savings allowance. Cash ISAs can therefore be particularly valuable for people with larger savings pots who would otherwise face tax on their interest.
Ms Coles also highlighted money market funds as an option for some savers, while those with money they will not need for five to 10 years or more could consider investing for the longer term. But investments can rise and fall in value and are not a substitute for emergency cash.
The figures provide a stark reminder that putting money aside is only half the battle. For those with savings sitting idle, failing to move them to a competitive account could mean thousands of pounds in lost interest over the years, while banks continue to enjoy the benefit of holding their customers’ cash.
