Many people in the UK could be missing out on hundreds of pounds in potential earnings simply by keeping their money in low-interest current accounts instead of switching to higher-interest savings options. Research highlights the growing financial impact of leaving cash in the wrong place, especially for those nearing retirement.
The Cost of Keeping Money in Current Accounts
According to research by Shawbrook Bank, 13 million current accounts in the UK hold balances exceeding £5,001, with an average of £23,600 per account. Many Britons, particularly those aged 55 to 68, are failing to take advantage of higher-interest savings accounts.
Key Findings:
- 25% of 55-68-year-olds have over £3,000 in their current account.
- 9% of this group keep more than £9,000 in current accounts.
- With average high-street savings accounts offering 2.92% interest and top accounts reaching 5% interest, failing to switch could result in over £208 in lost interest on £5,000 over two years.
Why Current Accounts Cost You Money
Adam Thrower, head of savings at Shawbrook Bank, explains:
- Current accounts are not designed for savings and usually pay low or no interest.
- People may leave large sums in current accounts for easy access, but better options exist with easy access savings accounts offering competitive interest rates while maintaining flexibility.
Best Alternatives to Current Accounts
1. Easy Access Savings Accounts:
- Chase Digital Bank:
- 5% AER (including a 1.44% bonus for 12 months).
- Interest is paid monthly.
- No minimum deposit required.
- Atom Bank Instant Reward Saver:
- 4.85% AER, interest paid monthly.
- No minimum deposit, but up to £100,000 can be invested.
- Note: A lower interest rate is applied during any month a withdrawal is made.
2. Fixed-Rate ISAs:
- Ideal for those with larger deposits, as they allow tax-efficient savings.
- Interest accumulates year-on-year with fixed rates for added stability.
Why Many Don’t Switch
Thrower highlights that some people may be reluctant to move their savings because they fear losing access to their funds. However, with the availability of high-interest easy access accounts, this concern can be easily addressed.
The Potential Loss in Numbers:
| Balance Held | Interest Earned in Current Account (0%) | Interest Earned in 2 Years at 5% | Potential Loss |
|---|---|---|---|
| £5,000 | £0 | £520 | £520 |
| £10,000 | £0 | £1,040 | £1,040 |
| £20,000 | £0 | £2,080 | £2,080 |
How to Maximize Savings:
- Review Your Current Account: Determine how much cash you’re holding that could earn interest elsewhere.
- Compare Savings Rates: Look for accounts offering the highest returns, like Chase or Atom Bank.
- Consider Your Needs: If flexibility is a concern, choose an easy access account. For long-term growth, explore fixed-rate ISAs.
- Take Action: Don’t leave your hard-earned money sitting idle—switch to a savings account that pays off.
Millions of Britons are missing out on significant interest by sticking to low-paying current accounts. By switching to high-interest savings accounts or fixed-rate ISAs, you can maximize returns on your deposits. With options like Chase Bank’s 5% AER easy access account, there’s no better time to rethink where you store your savings.
FAQ
Why do current accounts pay low interest?
Current accounts are designed for everyday banking needs, such as withdrawals and payments, rather than long-term savings. Therefore, they typically offer little to no interest.
What is an easy access savings account?
An easy access savings account allows you to earn interest on your savings while maintaining the flexibility to withdraw money when needed.
How much interest could I earn by switching?
With top savings accounts offering rates around 5%, you could earn £520 in two years on a balance of £5,000.
What is the best savings account in the UK right now?
Chase Bank currently offers a 5% AER on its easy access savings account, making it one of the top options.
Are fixed-rate ISAs better for large deposits?
Yes, fixed-rate ISAs are tax-efficient and allow larger deposits to earn interest over time, making them ideal for those with substantial savings.
