Are you losing money with an easy access savings account?
According to UK Finance, £654.63bn was sitting in easy access savings accounts in May, up 3 per cent from May 2018, and 8 per cent from May 2017.
During the same period, the sums in fixed rate and notice accounts stalled at £199.65bn – down 3 per cent from May 2018, and 9 per cent from May 2017.
Easy or instant access savings accounts allow you to deposit and withdraw money whenever you like – but interest rates can be very low. The current best rate is 1.50 per cent, but many older accounts pay much less than this, sometimes as little as 0.1 per cent.
Fixed rate and notice accounts require you to tie up your money for a set period of time – but pay higher rates. For example, BLME is currently offering a one-year bond paying 2.2 per cent and a five-year bond paying 2.7 per cent.
When fixed rate accounts mature, the cash is often moved automatically into an easy access account.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Savers are coming to the end of fixed rate deals and letting their money drift into high street easy access accounts instead, where they pay the price of some pretty dismal rates – as low as 0.15 per cent. It’s easy to see why, when there are high street banks offering less than 1 per cent in return for tying your money up for three years: who wants to trade flexibility for 0.85 per cent?
“However, by fighting the drift, looking beyond the high street, and taking control of your savings, you could get 10 times the rate on your easy access account and three times the interest on fixed rate savings.”
Save up a cash buffer
Ideally, everyone should have three to six months’ worth of expenses in an easy access account for emergencies. You can earn more interest on easy access accounts from new banking brands and smaller building societies. For example, Marcus by Goldman Sachs, Virgin Money and Cynergy Bank’s easy access accounts all pay 1.5 per cent AER.
Once you have your safety net in place, it’s worth considering whether you can tie up the rest of your cash savings in fixed rate bonds, in return for more interest.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “The launch of the Marcus account from Goldman Sachs shook up the sleepy savings market and forced more banks and building societies to up their rates, meaning nine providers are now offering easy access accounts with rates above 1.4 per cent. There’s no doubt that this has helped to draw more savers into the market, and away from fixed-term accounts.
“While the 1.5 per cent rate offered by Marcus, Virgin Money and Cynergy Bank is a boost for anyone holding cash, it’s still below inflation and savers are in the perverse position of rushing to lock in a loss in real terms. That’s fine if you know that you need to access the cash in the short term, but those who are saving for the future could be missing out.”