Savers missing out on £1bn a year by leaving cash in current accounts

Savers are missing out on up to £1 billion interest a year by leaving cash languishing in current accounts.

The amount in bank accounts rose nearly 30 per cent after ‘accidental savers’ benefited from spending less in the pandemic.

The rise far outstrips the 18 per cent extra funnelled into easy-access savings accounts.

The amount of cash held in bank accounts has soared by nearly 30% over the past year after ‘accidental savers’ benefited from spending less during the pandemic

It means there is now a huge £235.5 billion in current accounts, where you earn no interest, figures from the Bank of England released yesterday show.

Further research reveals seven in ten savers who have managed to stash away money in the past year plan to continue holding their pandemic savings in their current accounts.

Yet they could earn about £235.5 million in interest by shifting their money into the average easy-access account paying 0.1 per cent.

And if savers opt for a better-paying account at 0.4 per cent, they could, together, pocket £942 million — or just over £1 billion at the very top rate of 0.45 per cent.

Interest rates have dropped in the past year since the base rate was set at 0.1 per cent. But they have shown signs of firming. Several banks pay 0.4 per cent on their easy-access accounts, while a couple pay slightly more.

The Bank of England is not expected to raise rates when its Monetary Policy Committee meets on Thursday — but another cut seems to have gone by the board.

Laith Khalaf, financial analyst at fund platform A J Bell says: ‘The interest rate markets have priced in a 25 per cent chance of a hike in the Bank of England base rate from 0.1 per cent in the next year and discounted a cut.’

Despite rates staying low, the economic picture looks rosier thanks to the vaccine rollout, along with shops re-opening.

Keeping money in a current account appeals as savers know they can access it easily. But a linked savings account could put the money back in your current account within a couple of hours.

And by moving spare cash into a savings account until it’s needed, it is easier to keep money earmarked for a rainy day separate from your everyday spending.

Paragon Bank went to the top of the best-buy tables with its 0.41 per cent on its Limited Edition Easy Access Account on a minimum £1 in mid-April. 

Last Friday, Kent Reliance raised the stakes to 0.45 per cent on £1,000 or more on its Easy Access Account.

Banks at 0.4 per cent include Marcus by Goldman Sachs and Saga Savings Easy Access (both on a minimum £1), RCI Bank Freedom account (£100), Shawbrook Bank (£1,000), Hampshire Trust Bank (£1,000) along with both Charter Savings Bank and Investec with a higher minimum of £5,000.

Some providers, including Nationwide and Leeds BS, pay 0.4 per cent but limit the number of times you can take money out of your account to three or four a year.

Ignore the big banks — they pay 0.01 per cent or 10p interest a year on £1,000.

This post first appeared on Dailymail.co.uk