Millions of savers are being warned they could be throwing away hundreds of pounds a year. A typical saver with £20,000 in a closed easy-access account is earning an average rate of just 2.39% – potentially missing out on £322 a year compared with moving the money into an account paying 4%. The findings from Moneyfactscompare.co.uk found that despite savings rates remaining close to their highest levels for more than a year, with the average savings rate now standing at 3.57%.
Blinded by Loyalty
Experts say many customers are being "blinded by loyalty" and failing to review accounts that were opened years ago, allowing banks and building societies to pay them far less than is available elsewhere. The warning is particularly significant as inflation remains at 2.8%, meaning many savings accounts are failing to keep pace with rising prices and are effectively reducing the real value of customers' cash.
Moneyfacts analysis found that four out of five easy-access accounts currently pay less than the Bank of England's 3.75% base rate. Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: "Savers blinded by loyalty or failing to check their easy access accounts regularly could be earning a paltry rate. Convenience comes at a cost, so savers who keep their pots with a high street bank, or even in a current account, are not making their money work as hard as it could."
High Street Banks Pay Just 1%
"The top savings rates on live easy access accounts pay more than 4%, yet some of the biggest high street banks pay just 1%. A closed easy access account will be earning a pitiful 2.39% on average, which results in a loss of £322 a year unless savers instead deposited £20,000 into an account earning 4.00%."
Delayed Benefits from Rate Rises
The research also suggests that customers trapped in older, closed accounts are slower to benefit when interest rates rise. When the Bank of England last increased rates by 0.25 percentage points in August 2023, it took around two months for average rates on new easy-access accounts to reflect the increase. By contrast, savers in closed accounts had to wait three months, while closed cash ISA customers waited four months.
Moneyfacts said many savers have become complacent after years of low returns, but argued that reviewing accounts every six months could make a substantial difference.
Fixed-Rate Deals Becoming Attractive
The study found fixed-rate deals have become increasingly attractive in recent months. The average one-year fixed-rate bond has risen from 3.79% in March to 4.24%, while average easy-access rates have increased only marginally from 2.42% to 2.53%. Ms Springall said those holding larger cash balances should consider whether locking money away for a fixed term could secure a better return.
Tax Implications and Cash ISAs
She also warned that more savers could find themselves facing tax bills on interest as frozen tax thresholds drag increasing numbers into higher-rate tax bands. Higher-rate taxpayers can earn only £500 in savings interest before paying tax, compared with £1,000 for basic-rate taxpayers.
At the same time, she highlighted the growing appeal of cash ISAs, which shield interest from tax. According to Moneyfacts, £12bn was deposited into ISAs in April alone, one of the largest monthly inflows since records began.
Upcoming Changes to Cash ISA Allowance
Savers are also facing a deadline to make the most of current cash ISA rules. From April 2027, the annual cash ISA allowance for under-65s is due to be cut from £20,000 to £12,000 as ministers seek to encourage more people to invest through stocks and shares ISAs.
