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UK savers under attack from ‘zombie accounts’

Kit Klarenberg
Written By:
Kit Klarenberg

There is a widespread lack of awareness among UK savers of how much interest their account actually pays out, according to RateSetter research.

The peer-to-peer lender’s findings suggest 41 per cent of savers are unaware of their savings account interest rate. Of those that are aware, a third are earning less than 1 per cent.

Each of the UK’s five largest banks offer at least one savings account paying 0.5 per cent or less, creating ‘zombie accounts’ – products paying such low rates of interest the capital in the account is barely alive – for millions of consumers.

The table below illustrates the lowest rates paid by the UK’s largest banks.

Bank Lowest rate paid Product name
Barclays 0.25 Everyday Saver
HSBC 0.05 Flexible Saver
Lloyds 0.5  (0.25 after 12 months) Easy Saver
RBS 0.5 Instant Saver
Santander 0.1 Instant Saver

RateSetter also identified over 20 ‘zombie-teaser accounts’, which are accounts paying respectable rates of interest for a limited time which then transform into a lower-paying account.

For example, First Direct offers a regular savings account that pays 6 per cent to savers who make monthly deposits of between £25 and £300. After 12 months, that account switches to one of two other accounts, which pay from 0.05 per cent to 0.25 per cent, resulting in a reduction of more than 5.5 percentage points.

Meanwhile Lloyds offers a cash ISA that pays either 0.75 per cent or 0.8 per cent depending on the balance held. However, after one year, the account automatically changes to an Instant Cash ISA which pays just 0.25 per cent.

Rhydian Lewis, CEO of RateSetter, said: “It’s in banks’ interests to pay the lowest rates they can competitively get away with, so it’s not surprising zombie accounts with pitifully low rates are gnawing away at the UK’s savings.

“However, savers needn’t feel trapped by the high street zombies. There are now several different ways for savers and investors to make sure they get the most for their money, so it’s important that people check the interest rate they’re getting, go online and shop around.

“We believe calculated risks are both necessary and acceptable for investors to earn zombie-beating returns, and it appears, with a growing number investing in peer-to-peer platforms like RateSetter, this is becoming a more widely held view.”