🔔 Money continues to pour into Easy Access accounts, including those that pay NO interest!

Is your money earning you nothing?

Competition in the savings market is desperately needed, especially on easy access savings accounts. There is more cash than ever pouring into easy access accounts – in fact, even more worrying is the amount being added to accounts that pay no interest at all, so presumably excess money simply being left to rot in current accounts. It’s great news that people are saving more, but with some of the lowest rates from the largest most popular high street banks and NS&I offering just 0.01% AER, many people are earning virtually or literally nothing.

According to the Bank of England, there is now over £242 billion sitting in these non-interest bearing accounts, up 32% in just 18 months, since before the pandemic. To put that into context, the 18 months previous to this saw an increase of just 11%. In addition to this money, there is a further £944 billion in standard easy access accounts and together, this represents almost 90% of all money in cash savings accounts.

Let’s just sit with that for a while - that’s almost £1.2 trillion, most of it earning peanuts. The Bank of England states that the £944billion is earning on average just 0.10% AER.

If those savings were to move to the current best paying 1-year fixed rate bond paying 1.35%, that’s £15 billion in extra interest the banks (and building societies) would need to pay out. That’s what we’re missing out on if we don’t make the most of what’s available.

With inflation at higher levels, while interest rates remain low, this can be very damaging as the real value of your money is falling – the interest earned is not enough to keep up with the increasing prices of the things we need or want to buy. Which means that you will need to either go without, or dip into your cash savings to make ends meet. But that means having even less capital earning interest, so it becomes a vicious cycle.

So, increasing the pounds in your pocket is key.

With inflation at 2%, those with cash languishing in an account paying no interest will see the real value of their money fall far more than those earning the best rates of interest. On a deposit of £50,000, after five years the real value will have fallen by over 9.4% to £45,287 if no interest is earned. If your money is in a high street bank earing 0.01% it won’t fare much better – your £50,000 might appear to have increased slightly as you would have earned £5 a year (yes, just £5!!) – but actually the real value will have fallen to £49,025 after a year and £45,309 after five.

On the other hand, if you were to choose the best easy access account paying 0.65% your £50,000 would have grown to £51,646.26 in physical terms over five years and after inflation has been taken into consideration, although it would be still worth less in real terms, it would be worth almost £1,500 more.

Better still, with best buy fixed rate bonds also on the up, you can earn even more if you don’t need access. This week saw DF Capital launch a 1-year bond paying 1.30%, swiftly followed by Tandem then Allica Bank launching the current market leading 1-year bond paying 1.35% AER – more than double the interest on the best easy access account.

So, especially if you have become one of the many ‘accidental savers’ leaving excess funds in your bank account – or if you haven’t checked your rates for a while, now is the time to see if you could be earning more.

Take a look at our Best Buy tables and better still, sign up for our Rate Alerts, so we can let you know when new and competitive rates are launched.

If you think you might be holding too much in cash, perhaps you'd like to explore other options, so why not get in touch. We’re currently offering all those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our TPO colleagues, worth £500. You can find out more here.