Savers are warned they are being shortchanged by almost £1,000 and they don’t know it.
British savers are missing out on a staggering £985 in potential interest earnings due to their funds languishing in low-interest accounts, according to a recent analysis by Paragon Bank.
The study reveals that at least £183billion of adult savings is currently earning interest below the rate of inflation, effectively shrinking the value of people’s money in real terms.
Millions of savers are being affected, with 2.3 million accounts earning one per cent or less. The total sum held in these underperforming accounts amounts to a whopping £10.1billion, highlighting the widespread nature of this financial oversight.
Experts are now urging savers to take action and switch to higher-interest accounts to maximise their returns and protect their wealth from inflation.
Derek Sprawling, Savings Managing Director at Paragon Bank said: “Given the range of providers paying generous rates of interest available across the market, it’s remarkable there are still savers with large balances still accepting returns of one per cent or below.”
The CACI data showed 261,000 interest-bearing adult accounts containing £10,000 or over earned one percent or less in July 2024
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He emphasised: “These savers are seeing their money shrink in real terms as their return remains below inflation and, collectively, are missing out on over £250million in interest.”
While the Consumer Price Index (CPI) rate has eased to around 1.7 per cent as of September 2024, many savers are still earning significantly less on their deposits.
This gap is costing savers dearly. If the £183billion currently earning 1.5 per cent or less were to earn 4.87 per cent instead, it would generate £8.9billion in interest, compared to just £2.7billion at the lower rate.
The CACI data showed 261,000 interest-bearing adult accounts containing £10,000 or over earned one per cent or less in July 2024.
Over 8,500 accounts boasting balances of £100,000 or above were earning that figure, rising to 42,700 accounts containing £50,000 or above.
Collectively, Paragon said these savers are missing out on £258million in savings interest each year. By value, CACI data shows that £8.6billion is held in the quarter of a million accounts, creating an average balance of £32,811.
Based on one per cent interest, the average account could expect to earn £328.11 in interest over a year, or collectively £85.9million.
The good news is that savers can easily boost their returns by switching to higher-interest accounts, many of which can be opened with minimal deposits.
For instance, Principality Building Society offers an impressive eight per cent interest rate on their regular saver account, which can be opened with no minimum deposit.
Other attractive options include Nationwide Building Society’s 6.50 per cent rate and NatWest’s 6.17 per cent rate.
For those preferring instant access, Cahoot’s Sunny Day Saver offers five per cent interest with just a £1 minimum deposit. Similarly, Ford Money’s Flexible Saver and Cynergy Bank’s Online Easy Access Account both provide competitive rates with only £1 required to open.
Cash ISAs are another option, with Trading 212 offering 5.10 per cent interest and no minimum deposit. These accounts allow savers to earn interest tax-free, making them particularly appealing for those with larger savings.
Derek Sprawling said: “The savings switch message can often get ignored by those with smaller balances, which can be understandable given the relatively small increase in returns. But, those with sizeable deposits have a real and genuine incentive to move their money.”
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The majority of the £183billion earning below-inflation rates is held in instant access accounts, making it easy for savers to switch.
£137.6billion is in non-ISA instant access accounts, while £38.9billion is in instant access ISAs.
Sprawling concluded: “I would urge anybody who is seeing the value of their money decrease to review their options and shift their savings.”
With the Bank of England’s recent interest rate cut, savers are encouraged to act quickly to secure the best deals before rates potentially decrease further.