UK households could be forfeiting between £400 and £2,000 a year in potential interest because hundreds of billions of pounds remain parked in accounts paying nothing, according to new analysis from Moneyfactscompare.co.uk. The research estimates that as much as £12 billion annually is being lost across the country, with around £300 billion sitting idle in UK current and savings accounts earning zero interest.
The warning is particularly stark for those with significant balances. Someone holding £10,000 in an account paying no interest could be missing out on roughly £400 a year by not moving the money to an account offering 4% interest. For a balance of £20,000, the potential annual gain rises to £800, while a £50,000 nest egg could generate an extra £2,000 each year.
Banks profiting from savers' cash
BBC Radio 4 Money Box presenter Paul Lewis highlighted the scale of the issue, noting that banks hold £915 billion of customer money in savings accounts paying an average of 1.64% and a further £305 billion in accounts paying 0%, bringing the overall average to 1.23%. He explained that banks can deposit these funds with the Bank of England, which currently pays a Bank Rate of 3.75%.
“Over last 12 months banks made £28.5bn profit on our money!” Lewis said, underscoring the disparity between what banks earn from deposited funds and what they pass on to savers.
Experts urge action amid cost of living crisis
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Billions of pounds are being lost in savings interest, making it essential for consumers to take a step back and see how they can make their money work harder. Amid a cost of living crisis, every pound counts.” She attributed the problem to behavioural factors, saying: “Busy lives and complacency set in, making it a little too easy to just leave cash sitting in a current account that pays no interest.”
Springall pointed out that even the most flexible accounts from major banks pay an average rate of just 1.16%. She advised: “Ideally, savers need to aim for a return of 4 per cent on a fully flexible easy-access account that allows unlimited withdrawals to move cash to and from a current account as and when it's needed.”
Cash ISAs remain a tax-efficient option
For those concerned about tax on their savings, Springall noted that cash ISAs continue to be a significant help for savers trying to shield their hard-earned cash from tax. The analysis serves as a reminder for consumers to review their accounts regularly and consider switching to higher-paying options, particularly as the cost of living continues to put pressure on household budgets.
