UK savers missing out on £13billion cash boost - how to act now and fix it
Savers are losing out on £13billion by leaving their money languishing in accounts that don’t pay any interest.
This is according to new research from money management app Plum, which shows £253billion is lying in zero-interest accounts. It amounts to around 14% of household savings overall - although the total figure is down from £268billion over 12 months.
In real terms, it means £1,000 saved in an account that pays no interest would drop in value to £825.89 after five years if you take into account inflation, which currently sits at 3.9%. The top-paying easy-access account right now is from Metro Bank which pays 5.22%.
Investec is currently top of the table for fixed rates, paying 5.3% for a one-year fixed account, while Melton Building Society pays 5.5% for its notice account where you need to give 180 days notice before withdrawing your cash.
Regular saving accounts pay more - but you're normally limited to how much money you can save each month. Nationwide has launched a linked saver which pays 8% fixed for one year - but you can only deposit up to £200 each month. Plum research found close to one in five people (17%) didn’t know whether their money was earning interest or not.
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To help people get their savings working harder for them, Plum is launching a campaign to “Wake Up Your Money”. Victor Trokoudes, CEO and Founder of Plum said: “While it’s promising that the proportion of savings in zero-interest accounts is falling, a high proportion of hard-earned savings are still earning little to no interest. That means people are missing out on an opportunity not only to grow their money over time, but achieve real-terms increases in their savings as interest rates currently exceed inflation.
“It’s welcome that the FCA has put more pressure on the high street banks to offer savings rates that more closely reflect the increase in the base rate, so savers can benefit. However, an average rate of 1.99% on easy access deposits is still not fair when the base rate remains at 5.25%. Borrowers are paying more while savers see minimal benefits, highlighting that the business models of the major banks are inherently misaligned with the interests of their customers . ”
Top tips to get saving
Plum personal finance expert Rajan Lakhani has shared the following tips to help get you saving.
- Automate your savings: Automatically set money aside each week or month, says Rajan, so you can get into the habit of saving without really having to think about it. You can do this by physically putting coins and cash into a jar, or if you use a money management app, programme it so it saves a regular amount of money for you.
- Explore alternatives to your bank: Don’t let your bank take your money for granted, says Rajan. Shop around to find the best savings rates - and look beyond the typical high street lenders. MoneySavingExpert.com has listed some of the best rates.
- Take on a savings challenge: The new year is always a good time to take on a new challenge. The 52 Week Challenge is a popular one, says Rajan – you save £1 the first week, £2 the second, then a pound more every week until the end of the year. In total, you’ll set aside £1378 over the course of 2024. An alternative to the 52 Week Challenge is the 1p Challenge, where you save 1p on January 1st, 2p on January 2nd, and a penny more each day until you’ve saved £671.61 over 2024.
- Get tax-efficient: Make sure that you have maximised your Individual Savings Account (ISA) tax-free allowance, especially with Cash ISA rates becoming more competitive.
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