According to a study by Hargreaves Lansdown, the most common reason for leaving cash in a current account is that it’s easy to access money in an emergency (46%).
The perceived hassle of moving it is also a big factor – 15% of those questioned said it’s not worth it, 14% said it’s easier to have it in one place, and 13% said they haven’t got round to switching.
The research found that more men (58%) than women (54%) keep at least some of their savings in their current account. The practice is also much more common among younger people aged 18-34 (67%), as well as higher-rate taxpayers (81%) and investors (83%).
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “More than half of savers have fallen into the current account trap, leaving at least some of their savings in a current account. While keeping your cash to hand may seem like an easy option, a combination of inflation and sticky fingers can seriously dent your financial resilience.
“We hold over £297bn in savings accounts earning no interest at all, up by around a fifth in a year. A big chunk of this will be sitting in current accounts. People on higher incomes, and those with investments, are more likely to say they save in their current account. They’re likely to be sitting on larger sums, so are paying an even bigger price for it.”
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Comfort and ease
Just under half (46%) of those questioned said they save in their current account because they feel more comfortable knowing it’s handy for emergencies. With cash in their current account, they don’t have to transfer it between accounts – they can just use their debit card.
But Coles points out that switching money from a savings account can be done in a couple of clicks on an app and often transferred immediately.
She said: “It may feel psychologically closer in your current account, but in practical terms, it may be no nearer than a savings account, so you’re paying a big price for a misguided sense of comfort.”
The study also found that some people don’t get round to doing anything with their savings, because they don’t want the hassle of shopping around for a competitive account, switching and then keeping on top of it. However, none of these things have to be a hassle now, as it can all be done online.
Missing out on returns
Hargreaves Lansdown found that 15% of people don’t think it’s worth bothering to move their money into a savings account because they don’t realise how much more money they could make elsewhere.
Currently, you can earn 4.5% AER interest, or more, in an easy-access account from an online bank or savings platform.
Your money can also be eroded by inflation if you leave it in your current account. Researchers calculated that if you had the average of £3,365 savings in a current account, and inflation was running at 3.5%, after a year, your money would have the same buying power as £3,251 today – so it would have lost £114 of spending power.
But if you moved the cash to a competitive easy-access account, you could earn a return that’s higher than inflation.
