Money experts warn millions of savers could be missing out on up to £322 a year by staying in low-interest accounts. A typical saver with £20,000 in a closed easy-access account earns an average rate of just 2.39%, potentially losing £322 annually compared to switching to an account offering 4%. This comes despite average savings rates remaining close to their highest levels for over a year, currently at 3.57%.
Loyalty Blinding Customers
Experts say numerous customers are being "blinded by loyalty" and neglecting to review accounts opened years ago, allowing banks and building societies to pay them considerably less than available elsewhere. The warning is particularly pertinent as inflation remains at 2.8%, meaning many savings accounts struggle to keep pace with rising prices, effectively eroding the real value of customers' money. Moneyfacts analysis revealed 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."
"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 Hikes
The research further indicates that customers locked into older, closed accounts are slower to benefit when interest rates increase. When the Bank of England last raised rates by 0.25 percentage points in August 2023, it took approximately two months for average rates on new easy-access accounts to reflect the change. In contrast, savers in closed accounts had to wait three months, while closed cash ISA customers faced a four-month wait.
Moneyfacts noted that many savers have grown complacent following years of meagre returns, but argued that reviewing accounts every six months could make a considerable difference. The study revealed that fixed-rate deals have grown increasingly appealing in recent months. The average one-year fixed-rate bond has climbed from 3.79% in March to 4.24%, while average easy-access rates have risen only marginally from 2.42% to 2.53%.
Ms Springall suggested that those holding larger cash balances should consider whether securing their money in a fixed-term account could yield a greater return. She also cautioned that more savers could find themselves facing tax bills on interest earnings, as frozen tax thresholds pull a growing number of people into higher-rate tax bands. Higher-rate taxpayers can earn only £500 in savings interest before becoming liable for tax, compared with £1,000 for those on the basic rate.
Cash ISAs Growing in Appeal
Meanwhile, the growing attraction of cash ISAs — which protect interest from taxation — was also highlighted. According to Moneyfacts, £12bn was deposited into ISAs in April alone, representing one of the largest monthly inflows since records began. Savers are also facing a deadline to take full advantage of the current cash ISA rules. From April 2027, the annual cash ISA allowance for those aged under 65 is set to be reduced from £20,000 to £12,000, as ministers look to steer more people towards investing via stocks and shares ISAs.
