Billions of pounds are being left languishing in current accounts that pay zero interest, new data shows.
‘Current account coasters’ are leaving money in their accounts after bills and expenses instead of transferring it to a high-interest savings account, meaning they are getting no additional growth.
Around 74.7 million, or 88% of all current accounts in credit, received no interest on balance in June. The overall average credit balance for accounts receiving no interest stood at £4,236, analysis by Spring, a part of Paragon Bank, found.
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This problem is even worse for savers with substantial sums. Spring found 6.4 million current accounts contain a balance of £10,000 or more while earning zero interest, while 323,000 accounts holding £100,000 or more are coasting.
The average balance of an account containing £10,000 or more and earning zero interest is £34,857. If this cash was instead put into one of the best easy-access savings accounts on the market, it could earn over £1,500 in interest over the course of a year.
Derek Sprawling, head of money at Spring, said: “There are a sizable number of current accounts that contain large balances of over £10,000 earning zero interest.
“That money is being eroded in value and could be generating much better returns if moved to a savings account offering a rewarding rate of interest.”
Over £10 billion in savings accounts earning 1% interest or less
The scourge of low interest rates is not contained to just current account balances. In fact, an increasing number of people are earning interest of 1% or less in their savings accounts.
Separate analysis by Paragon Bank shows that 3.9 million UK savings accounts holding £10.6 billion are earning these paltry interest rates.
The number of savings accounts earning 1% or less in interest has grown from 1.7 million in January to 3.9 million in June this year, with the total amount held across these accounts surging by over 125%.
The most significant increase this year happened between May and June, when balances earning minimal interest jumped from £6.6 billion to £10.6 billion.
The rise ends an almost three-year decline in balances earning 1% or below which had steadily fallen since the summer of 2022 when the Bank of England started increasing interest rates.
Andrew Wright, head of savings at Paragon Bank, said: “The tide is beginning to turn for savings balances earning 1% or below. Given stubbornly high inflation, and plenty of competitive options for savers, consumers have a great choice when it comes to savings accounts, yet many are still missing out on significantly better returns.
“We urge savers to shop around and make sure their money isn’t sitting in an account earning 1% or below. Even a small increase in interest can make a meaningful difference over time.”
Some good options for savers whose accounts are afflicted with low interest rates include the Chip Instant Access Account, the best easy-access savings account on the market right now. The account pays 4.8% interest for the first three months before falling to 2.81%.
The second-best savings account on the market is Chase’s Saver with Boosted Rate, which pays 4.5% interest for the first 12 months you hold the account before falling to 2.56%.
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