More than three quarters (76.8 per cent) of cash being held in High Street banks is being kept in low-paying instant access accounts, new data has revealed.
According to the latest statistics from Finance UK, £651.6bn was being held in instant-access accounts in 2018 – 2.4 per cent increase on the previous year.
Instant access cash savings accounts pay some of the lowest interest rates on the market, meaning that millions of savers could be losing out on the higher returns offered by fixed-rate bonds, or the tax-free savings offered by ISA products. Yet the amount of cash in fixed rate bonds and notice accounts fell by 5.9 per cent last year, to £197bn.
“The slide into high street easy access accounts continues,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown. “While it’s important to have an emergency fund of 3-6 months’ worth of expenses you can get hold of in a hurry, having too much in these accounts is a risky business. At the moment, there’s not a single easy access savings account that keeps pace with inflation – which means that over time the value of your savings is being destroyed.”
The current rate of inflation is 2.1 per cent, and Coles has urged savers to consider locking their money away for a set period of time in order to add value to their money.
“To consistently beat inflation, we need to take a portfolio approach, fixing chunks of cash we expect to need within the next five years for the length of time that suits us best,” she said. “And for cash we won’t need for 5-10 years or more, considering stock market investments.”
Coles added that savers should “look beyond what’s on offer from our usual High Street bank”. An influx of challenger banks and online-only banking platforms have been able to offer much more competitive rates than traditional bricks-and-mortar banks.
For instance, while Barclays is offering 0.7 per cent on a one-year fixed account, newer banks such as Gatehouse and Bank of London and the Middle East are able to offer 2.15 per cent for a near-identical account.
“It takes a lot for us to be persuaded to switch,” she added. “But more than tripling your interest rate is a decent reward for those who take the plunge.”