Millions of current accounts containing thousands of pounds are earning no interest at all, significantly “eroding” the value of the money, a new analysis shows. New research by savings app Spring showed a staggering 6.4 million current accounts in the UK contain balances above £10,000 that receive zero returns.
The average balance in these high-value non-interest-paying accounts is £34,857. If transferred to a competitive savings account paying 4.3%, such a balance could generate £1,529 a year. Alarmingly, 323,000 accounts with balances above £100,000 collectively contain more than £32billion – all receiving nothing. Over five years, savers in these accounts could miss out on as much as £25,000 in returns by failing to move the money into a top interest-bearing fixed-rate savings account.
Derek Sprawling, head of money at Spring, said: “There is a sizeable number of current accounts that contain large balances of over £10,000 earning zero interest.
“That money is being eroded in value and could be generating much better returns if moved to a savings account offering a rewarding rate of interest.”
Overall, £316.5billion – roughly 80% of all credit balances – is held in current accounts paying zero interest. Of that, £224.6billion, equal to 71% of the total, is in accounts containing more than £10,000.
Mr Sprawling continued: “Our research shows that apathy and anxiety are often a barrier for people to switch money from their current account to a savings account.”
Spring described many of these account holders as “current account coasters”, with around 29 million UK adults (55% of the population) habitually leaving surplus cash in their current accounts after bills and expenses.
The findings come as inflation remained above 3.8% in August, its highest level in 19 months. However, the Bank of England kept the Bank rate unchanged at 4% this week following cuts earlier in the year, which may spell better news for savers.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “Keeping interest rates on hold at 4% is better news for savers as it means average savings rates may remain higher for longer.
“Savings rates have been easing downwards in recent months, and with inflation creeping upwards, real, pre-tax returns are very much on the decline. That should not be a cause for apathy, however.”
She added: “Anyone with money idling in an old savings account paying a dismal rate should still shop around to secure the best deals while interest rates remain on the higher side.”
However, she urged people to consider post-tax net returns, especially as fiscal drag pulls more of people’s income into higher income tax bands.
She said: “Storing too much in a regular bank or building society account puts the saver at risk of breaching their Personal Savings Allowance, a threshold unchanged since its introduction in 2016.”
Basic rate taxpayers can earn £1,000 of interest tax-free, while higher rate taxpayers are limited to just £500. Additional rate taxpayers get zero allowance.
Ms Haine said: “For higher-rate taxpayers, real returns net of tax may only be marginally positive even on the most competitive accounts. A tax-efficient savings strategy can help to mitigate this.”
Up to £20,000 can be contributed to an ISA (Individual Savings Account) this financial year, free of tax on income or capital gains.
Ms Haine said this is “a route an increasing number of savers are taking as more of their savings get gobbled up by tax.”
She added: “The Government’s latest savings statistics showed a 67% jump in Cash ISA subscriptions, while contributions to Stocks and Shares ISAs surged by almost 11%. This is a direct consequence of the high interest rate environment of the time and the resulting high saving rates, which raised the prominence of Cash ISAs as an effective way to reduce tax liabilities.”
