Britons have been told to check their savings rates - because they could actually effectively be losing money. If you’re not earning at least the inflation figure of 2.9% from your savings provider, your money is being eroded, experts have said.
Many easy access accounts offer up to 5% interest, but research has shown millions have their money sitting in accounts which are offering virtually no interest. Savers with around £8,000 stashed away have been issued an urgent warning following the research.
Inflation rises and savings fall behind
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose to 2.9% in July, up from a 15-month low of 2.6% in June. It follows a 13% hike in Ofgem’s energy price cap last month, which increased the average gas and electricity bill by £221 to £1,862 a year.
The typical account earning below 2.5% contains a balance of £8,099. Overall, adult savings held in accounts earning 2.5% or under total £502 billion, according to fresh analysis of CACI data by savings app Spring. The findings showed a staggering £502 billion is currently sitting in adult savings accounts earning 2.5% or less, meaning they’re failing to keep up with inflation which currently stands at 2.9%.
Experts urge savers to check rates
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “This is a reminder that inflation still matters. Even small increases can erode the spending power of cash over time, so it is worth checking that savings are held in an account paying a competitive rate and that the account still matches the level of access needed. “Splitting savings across different goals can help balance flexibility and certainty. Easy-access accounts may suit an emergency fund or short-term plans, while fixed-rate accounts can provide more reassurance for money you will not need straight away - and are particularly competitive at the moment for those able to lock money away.”
A total of 62 million savings accounts are earning 2.5% or below, leaving millions of people effectively losing money in real terms. Remarkably, £155.8 billion is sitting in 735,000 accounts with balances exceeding £100,000, yet earning just 2.5% or less in interest.
With the Consumer Price Index (CPI) inflation rate at 2.6%, this means 62 million savings accounts earning 2.5% or less are declining in value in real terms, as their interest rate cannot match rising prices. The research also reveals that considerable sums are languishing in low-interest accounts, even amongst those with substantial savings.
Millions in high-balance accounts earning little interest
Spring discovered £437.2 billion is held in accounts containing more than £10,000, while £155.8 billion sits in accounts with over £100,000, despite all earning 2.5% or under in interest. Altogether, 10.3 million accounts hold more than £10,000 and 735,000 accounts contain over £100,000 in balances while earning 2.5% or less.
On average, savings accounts holding more than £10,000 but earning less than 2.5% interest pay just 1.43%. Across all accounts with balances above £10,000, the average interest rate is still only 2.91%.
Derek Sprawling, Head of Money at Spring, commented: “Today’s figures are a timely reminder of a growing challenge for savers. More than 10 million savings accounts with balances of over £10,000 are earning less than the rate of inflation, paying an average return of just 1.43%. That excludes money sitting in current accounts, which often pays no interest at all. For many people, the real value of their hard-earned savings is being steadily eroded by rising prices. “A competitive interest rate is important, but it should not be the only consideration. Savers should also think about how easily they can access their money when an unexpected bill or important life moment arises. The right account should offer a strong return while giving people the flexibility and reassurance that their savings are there when they need them.”
Energy costs and inflation outlook
There are concerns that inflation is set to keep rising as the conflict sends energy costs even higher over the winter months, and as the hot weather damages crops and puts food costs under pressure. Ofgem will announce the next price cap level for October to December on August 26, with the latest forecasts on Wednesday from experts at Cornwall Insight showing a 4% rise is expected, taking the average tariff to £1,941.
The ONS said the steep rise in the July to September energy cap, which follows a jump in wholesale gas prices, was only partly offset by last month’s lower crude oil costs, which had fallen sharply month-on-month in July amid hopes of a resolution to the Middle East conflict. Crude oil has since rocketed back up above 90 US dollars a barrel as the war shows no sign of ending and the crucial Strait of Hormuz shipping route – through which a fifth of the world’s oil and gas supplies is normally carried – remains closed.
Mike Hardie, deputy director for prices at the ONS, added: “Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting.” The latest data also showed Retail Prices Index (RPI) inflation rose to 3.2% last month from 3% in June, a key figure, with the July rate used to calculate next year’s train fare increase.
Last November, the then-chancellor Rachel Reeves announced that rail fares in England would be frozen in 2026, the first such freeze for 30 years, but it is unclear if the Government will extend this for a second year. Shadow chancellor Sir Mel Stride said the Iran war was not only to blame for rising inflation. He said: “Labour’s tax rises and business bashing have driven the cost of living higher and higher, yet Andy Burnham refuses to rule out yet more tax hikes at the Budget. “Labour’s economic mismanagement has left us unprepared for global shocks, with the UK having the highest inflation in the G7 at the start of the Iran crisis. It is ordinary people who are left paying the price.”
The latest ONS data also showed inflation including housing costs, CPIH, rose to 3.1% in July from 2.8% in June. Economists said the inflation rise would be watched closely by the Bank of England, but that it was likely to keep interest rates on hold when it next meets in September. James Smith at ING forecasts CPI to peak at 3.2% in the winter, but said the “bar for a Bank of England rate hike remains high”. “We continue to see the Bank of England keeping rates on hold this year, before resuming rate cuts next spring,” he said.
