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Have you fallen into the current account savings trap?

Written by: Emma Lunn
More than one in five (22%) savers keep at least some of their savings in a current account, and could miss out on returns as a result.

According to a study by Hargreaves Lansdown, the most common reasons for leaving cash in a current account are that it’s easy to access money in an emergency (44%) and it’s not worth moving it anywhere else while savings rates are so low (44%). The investment platform found that more men (24%) than women (19%) leave cash in their current account.

When questioned, 15% said they just hadn’t got round to moving their money yet. This was particularly common among young people (28%). Only 16% said they specifically leave the money in their current account because they get a good interest rate.

One in five (18%) of those who leave their savings in a current account find themselves dipping into it without meaning to.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “One in five savers have fallen into the current account trap, and risk seeing their savings disappear. We hold almost £250bn in savings earning no interest at all, up by around a fifth in a year and almost 50% in two years. A big chunk of this is sitting in current accounts, and while it may seem like an easy option, if you fall into the current account trap, you face risks that can seriously damage your savings.

“Part of the problem is that although significant numbers of people have built up far more in savings during the pandemic, a huge number of them haven’t moved their money anywhere, and are just sitting on it in their current account. This is most common among those aged 55 and over, where more than one in three (35%) keep savings in their current account.”

Women are more likely to consider current accounts a handy place for emergency savings, with 47% admitting to this. While this may be true, being handy is also the major problem with keeping savings in a current account, because it’s too easy to dip into.

The other big risk affects those who think rates are too low to be worth switching, including 47% of men who save in a current account.

“The trouble is that they’ll be hit by inflation,” said Coles, “And at a time when inflation is on the rise, it’s a real concern. If, for example, you have £30,000 in a current account, and inflation was running at 4%, after a year, your money would have the same buying power as £28,800 today, so it would have lost £1,200 of spending power. If you switched it to a competitive one-year fixed rate account offering 1.76%, you would still have lost £672 of spending power, but you’d be better off than if you’d left it in the current account.”

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