15 May 2024 , 13:27
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A staggering £253billion is still sitting in bank and building society accounts paying no interest, according to Bank of England data.
Despite this being down from a peak of £272billion in October 2022, it shows savers are still not taking advantage of higher interest rates following consecutive base rate hikes from the Bank of England. The base rate is currently at 5.25% and has been paused at this level since September 2023.
The last time interest rates were this high, just £33billion was held in non-interest bearing accounts, according to Laith Khalaf, head of investment analysis at AJ Bell. He said: “Given the dramatic rise in interest rates over the last few years, one might have expected this cash mountain to crumble, but remarkably £253billion still sits in accounts paying zero interest to households. This is money which is simply wasting away once the effect of inflation is taken into account. It would hold as much value stuffed into a mattress, if you could find one that would hold a quarter of a trillion quid.
“The last time interest rates were at 5.25%, in April 2008, there was £33billion held by households in accounts paying no interest. Even accounting for the increased stock of household savings over that period, that still looks like a phenomenal explosion in this type of account. To give some context, between 2008 and 2024 the amount held in instant access accounts paying some interest has increased from £510billion to £911billion, so nowhere near the same level of growth.”
Best savings rates
The good news is, you can still find savings accounts that pay above the rate of inflation, which currently sits at 3.2%. The current top easy-access account is from Paragon Bank and this pays 5.05%. However, you can only make two withdrawals per year, then the rate drops to 1.5% from the third withdrawal onwards. Oxbury pays 5.02% and allows unlimited withdrawals, although the minimum deposit is £20,000.
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But right now, the top notice account beats the rates on standard easy-access savers. Investec offers a rate of 5.25% for its 90 day notice account. This comes with a minimum deposit of £5,000. Easy-access cash ISAs also currently pay better than the rates on standard easy-access accounts.
Plum pays 5.17% through its easy-access cash ISA, although the rate drops to 4.29% after 12 months, and you can only make three penalty-free withdrawals per year. The rate drops to 3% from the fourth withdrawal. With an ISA, you can only deposit up to £20,000 each tax year - but any interest you earn is tax-free.
Alternatively, the best fixed rate easy-access account right now is 5.22% from online "savings marketplace" Flagstone. Online "savings platforms" work with a choice of banks and building societies to help find you the best rates. The best fixed cash ISAs are from OakNorth Bank and United Trust Bank, which each pay 4.73%.
Regular savings accounts pay the best rates, but you're limited in how much you can pay in each month. First Direct offers a 7% regular saver on up to £300 a month, while Co-op Bank and Skipton Building Society also each offer 7% but you can only save up to £250 a month.