Savers miss out on more than £10 billion in interest a year
Savers are missing out on a massive £10.4 billion in savings interest a year by leaving their money languishing in current accounts which pay them no interest at all.
Despite it currently being possible to earn returns of 5% or more, savers hold around £232 billion in accounts which pay zero interest, meaning that the purchasing power of their cash is being gradually eroded by inflation. If they moved this money into savings accounts paying 4.5%, they’d earn £10.4 billion in interest over a year.
According to research by Bowmore Wealth Group, the amount sitting in bank accounts that pay no interest has increased by 49%, up from £156 billion five years ago.
Savings and Investments from Netwealth, AJ Bell and Bestinvest
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Charles Incledon, director at Bowmore Wealth Group said: “With interest rates still near recent highs, there is no good reason for people to have more than their day-to-day cash requirements in a zero-interest account.
“Until just a couple of years ago, savings accounts were paying next to no interest which means there was less incentive to shop around for a better deal. But that’s not the case now. There isn’t much of an excuse to not shop around.”
Where to find the best savings returns
Rachel Springall, finance expert at Moneyfactscompare.co.uk said: “There is an expectation that the base rate will be cut twice more before the year is over, so savers need to prepare themselves for more interest rate cuts.
“Those who are happy to lock their cash away for a guaranteed return could look towards a fixed rate bond or fixed cash ISA, and with rates expected to decrease further, savers may wish to choose a longer-term deal.”
The current market-leading one-year fixed rate bond is the 12 Month Fixed Term Deposit account from savings marketplace Raisin, which is provided by Mizrahi Tefahot Bank Ltd. This account pays an annual equivalent rate (AER) of 5% on a minimum investment of £1,000. Rates are lower if you want to tie your cash up for longer, as markets anticipate that interest rates will come down in coming years. That means the best five-year fixed rate savings bond is Hodge Bank’s 5 Year Fixed Rate Bond which pays 4.37%AER on a minimum £1,000 deposit.
If you’d rather put your money into a tax-efficient fixed rate cash ISA, Virgin Money pays 4.61% AER on a minimum deposit of £1 held in its 1 Year Fixed Rate Cash ISA Exclusive Issue 16, whilst UBL’s 5 Year Fixed Rate Cash ISA pays 4.10% AER on a minimum deposit of £2,000.
Adam Thrower, Head of Savings at Shawbrook comments: “With rates likely set to fall soon, the next few months are crucial for securing inflation-beating returns.
Savings and Investments from Netwealth, AJ Bell and Bestinvest
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"Demand for long-term fixed rate accounts is growing, but near-retirees (aged 55 to 68) may be missing out. Our research shows only 18% see these accounts as a source of regular income, yet 34% want their savings to boost retirement funds. Locking in now could be a smart move for financial security.”