A whopping £250bn is sitting in savings accounts earning zero interest, the Bank of England (BoE) has found.
The Bank has urged savers to move their money – with some fixed accounts, for example paying over 6%, and easy access accounts paying over 4%.
The data follows a 14-point plan by the Financial Conduct Authority that will force savings providers to justify low interest rates on easy access savings accounts.
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The FCA said banks with lowest savings rates will face “robust action” as they have been too slow to pass the Bank of England’s interest rate hikes on to savers.
The data revealed 75% of consumers with a savings account hold savings with their current account provider. But the nine biggest banks in the UK are the ones offering the worst rates.
“The gulf between Base Rate hikes and the increase in interest on easy-access accounts is also highlighted by the Bank’s figures,” says Laura Suter, head of personal finance at AJ Bell.
“The average easy-access account was paying just 0.09% before the Bank started its current rate hiking cycle at the end of 2021, and has only increased to 1.46% in June – despite Base Rate having risen by 4.9 percentage points since then.”
As part of its new plan, the FCA will require banks to do more to encourage savers to move their money to higher paying accounts.
It has been smaller, challenger banks that have been upping their rates, and currently you can get rates of over 4% on easy access accounts and over 6% on fixed savings.
But, if you’re looking to take advantage of these rates, you should act fast as deals are disappearing just as quickly as they come into the market.
Currently no savings account beats inflation, which came in at 7.8% in June. But if your savings are languishing in a current account, or a savings account with a poor interest rate, it still makes sense to find a better place for your money.
What are the best savings accounts on offer?
- If you’re after an easy access account, Chip is offering 4.26% on its Instant Access Saver. You can open it with as little as £1.
- First Direct is offering 7% on its regular saver. You can pay in between £25 to £300 a month, but you have to be a First Direct current account holder. The rate is fixed for the first 12 months, but it may drop after that. You can also get a £175 switching bonus.
- Al Rayan Bank is offering 6.01% on its one-year fixed account.
Should you have a cash savings account?
It’s always a good idea to keep an amount of cash on hand to cover any unexpected expenses.
Easy access accounts are a good place to keep your emergency savings because, as the name suggests, you can withdraw your money at any time.
But even though rates are up they still don’t beat inflation, meaning in real terms, cash earning an interest rate below inflation is losing value. So, for long-term savings, investing is still a good option.
But the current environment means now is a good time to review your cash and look to place it somewhere where you can earn a decent rate of interest.
“We often see people hold on to cash when the markets are volatile, but remember, market volatility is normal – and as long as you are only investing money for the long term, you can potentially grow your money to beat inflation and see a greater benefit from compounding,” says Kalpana Fitzpatrick, senior digital editor of MoneyWeek and author of Invest Now.
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