Savers keeping money in older savings products could be missing out on better interest rates, according to new research from Moneyfactscompare.co.uk.
The comparison website found that closed easy access savings accounts, which are no longer available to new customers, have paid an average of 0.22 percentage points less than accounts still available to open over the past three years. On a £20,000 savings pot, that difference amounts to £139 in lost interest over the period.
Big bank rates lag behind
Moneyfacts found that selected easy access accounts offered by five of the UK's biggest banks currently pay an average of just 1.16 per cent interest, compared with 1.85 per cent in November 2023. Lloyds Bank's Easy Saver pays 0.75 per cent, while Barclays' Everyday Saver and NatWest's Flexible Saver each pay 1 per cent. HSBC's Flexible Saver pays 1.04 per cent and Santander's Easy Access Saver pays 2 per cent.
These rates apply to the specific accounts examined by Moneyfacts, rather than every savings product offered by the banks. By comparison, the Moneyfacts Average New Savings Rate, which covers a range of savings accounts and Cash ISAs currently available, has risen to 3.79 per cent, its highest level since September 2024.
Loyalty warning for savers
Rachel Springall, finance expert at Moneyfactscompare.co.uk, warned that customers who remain with the same savings provider for convenience could be losing out. She said: "Savers have endured years of unrewarded loyalty, with those leaving cash in closed accounts losing out on an extra £139 over the past three years compared to on sale easy access accounts."
She added: "Savers must make time to review their old accounts because there is no guarantee that increases to the Bank of England Base Rate will be passed on to them."
The research also found that 43 per cent of UK savings accounts do not pay more than the Bank of England's current Base Rate of 3.75 per cent. Moneyfacts highlighted Bank of England statistics showing that more than £306 billion is held in current and savings accounts paying no interest.
Fixed rate rises and tax checks
Moneyfacts found that average interest rates on several fixed savings products have increased in recent months. The average one-year fixed bond rate rose from 4.07 per cent in May to 4.56 per cent in November, while the average one-year fixed Cash ISA rate increased from 4.18 to 4.47 per cent over the same period. Five-year fixed Cash ISAs now pay an average of 4.75 per cent, compared with 4.19 per cent in May.
However, fixed accounts can restrict access to savings, so customers should check withdrawal rules before committing their money. Savers should also consider whether interest earned outside an ISA could result in an income tax bill. The Personal Savings Allowance allows basic rate taxpayers to earn up to £1,000 in savings interest each tax year without paying income tax. Higher rate taxpayers have a £500 allowance, while additional rate taxpayers receive no allowance.
From April 2027, income tax rates on savings interest above the relevant tax-free allowances are due to increase by four percentage points. Cash ISAs remain exempt from income tax on interest, and the annual ISA allowance remains £20,000.
Checks to make on savings accounts
Savers can review their accounts by checking the interest rate currently being paid and comparing it with alternatives available elsewhere. It is important to check whether an attractive introductory rate includes a temporary bonus that will expire, or whether withdrawals are restricted.
Customers moving money between Cash ISAs should use the official ISA transfer process rather than withdrawing the funds themselves, which could affect their tax-free allowance. Anyone considering switching should also check that their savings are protected by the Financial Services Compensation Scheme (FSCS) and whether multiple accounts share the same banking licence.
With savings rates varying significantly between providers, reviewing an old account could make a substantial difference to the interest earned without requiring customers to increase the amount they save.
