The latest BoE base rate hike takes interest rates to 4.5% and over the past few months, those on savings accounts have been creeping up - with some now above the base rate.
While MoneyWeek readers know too well that interest rates on savings accounts lag behind inflation - which is currently 8.7% - cash savings play an important role in good money management; whether it’s your emergency cash savings or savings for a short-term goal, we all need cash.
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But, the question is: is your cash working for you in the same way as your investments? With interest rates a talking point again, why are so many people still missing out on essentially getting something back for nothing - in other words, are we suffering from savings inertia?
As Morgan Housel put it in his book - The Psychology of Money - when building wealth: “The first idea - simple, but easy to overlook - is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.”
While we’ve been keeping our readers up-to-date with the best savings rates (yes, we’ve been shouting about them for quite a while), far too many people are leaving cash in accounts that pay little or no interest
Research from Shawbrook Bank found a shocking 47% of savers haven’t switched their savings rate in the last year. Around 15% of savers are still using accounts opened in 2017 or earlier in a period where rates were near their lowest.
More than two-fifths (42%) are saving into accounts earning less than 2.5%, more than a quarter are paying into accounts earning 2% or less and 10% of savers are simply unaware of their savings rate altogether.
I did my own little research around this too, and was shocked to discover just how many people in my circle of friends and family have significant cash in either current accounts paying no interest or low-paying savings accounts, below 1% in some cases.
But, let's say you had £5,000 in cash stashed away. An account with as little as 0.1% interest would give you annual gross interest of £5. But any easy-access account paying 3.5% would give you annual gross interest of £178, while a 5% interest rate would earn you £256.
I know where I'd rather have my money.
Why are savers not switching accounts?
OK, let's face it - interest rates have only just become something to talk about again, and it can take time to get used to this idea of banks and building societies paying interest. Humans are certainly creatures of habit.
But, as the saying goes: time is money.
While some savers - one in six (16%) according to Shawbrook - believe it is too complex to switch accounts, 13% simply can’t be bothered.
Many savers are also apathetic, with 38% sticking to a provider they know, and 34% saying they are satisfied with their current rates.
Yet opening an account today can take a matter of minutes, and if you are switching current accounts, the process is made simple with the Current Account Switch Guarantee.
Why should you act now with cash savings?
Moneyweek has been monitoring rates daily and although rates have been creeping up, we have also noticed the top rates often get pulled once the bank has enough customers as providers tend to focus on balancing the money they have in deposits with the amount they lend.
While they do not have to offer the same as the base rate, if a bank needs more deposits, they may increase their rates to draw in customers - but the best rates do not stick around.
How much interest can I earn on savings?
How much you can earn right now will depend on how much cash you have, when you need to access it and how often you want to save.
If you want easy access to your savings - then right now, you can earn 3.71% via Chip. The savings account is open to everyone and you only need £1 to open an account.
If you can lock your cash away for at least a year, then you could bag a 5.06% rate via Shawbrook Bank saver - and it beats the BoE base rate. You need a minimum deposit of £1,000 to open the account. Atom Bank pays 5% and you only need a £50 deposit to open the account.
Some regular saver accounts, like the First Direct regular saver account for example, offer 7%, but you can only deposit up to £300 a month and you must have the current account.
And it goes without saying, if you are saving for the long-term - 10 years or more - then investing can help your money grow faster, but remember that your money can go down as well as up.
So, if you are still waking up to interest rates, I would certainly urge you to take a look or you could be missing out on hundreds of pounds.
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Kalpana is an award-winning journalist with extensive experience in financial journalism. She is also the author of Invest Now: The Simple Guide to Boosting Your Finances (Heligo) and children's money book Get to Know Money (DK Books).
Her work includes writing for a number of media outlets, from national papers, magazines to books.
She has written for national papers and well-known women’s lifestyle and luxury titles. She was finance editor for Cosmopolitan, Good Housekeeping, Red and Prima.
She started her career at the Financial Times group, covering pensions and investments.
As a money expert, Kalpana is a regular guest on TV and radio – appearances include BBC One’s Morning Live, ITV’s Eat Well, Save Well, Sky News and more. She was also the resident money expert for the BBC Money 101 podcast .
Kalpana writes a monthly money column for Ideal Home and a weekly one for Woman magazine, alongside a monthly 'Ask Kalpana' column for Woman magazine.
Kalpana also often speaks at events. She is passionate about helping people be better with their money; her particular passion is to educate more people about getting started with investing the right way and promoting financial education.
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