The past few years have been tough, with households navigating inflation, a cost-of-living crisis, higher interest rates and soaring mortgage costs.
The silver lining has been higher savings rates on your money in the bank – but more than one in four people might be missing out.
A survey by Hargreaves Lansdown reveals that 27% of people don’t know what interest rate they are getting on their savings. This rises to 31% among those aged 35-54, and is higher still for women and renters at 35% and 38% respectively.
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If you don’t know what interest rate you are being paid, that means you are blindly putting your faith in your bank or building society. And, when it comes to offering decent rates, some savings providers have proved they can’t be trusted in recent years.
The Financial Conduct Authority intervened last year, asking savings providers with the lowest rates to justify their offering and to take action. The City watchdog has since run a marketing campaign to encourage savers to switch if their rate isn’t competitive.
However, exclusive data from Moneyfacts reveals there are still 109 easy-access savings accounts and cash ISAs on the market paying 2% interest or less, of which 24 pay interest of 1% or less.
Moneyfacts counts 559 products on the market in total, so the number of accounts paying 2% interest or less makes up almost a fifth of all products. That is scandalous when you consider that the Bank of England has held the base rate at 5.25% for almost a year.
The good news is that, by shopping around, you can do much better. According to our round-up of the most competitive savings rates on the market, you can earn up to 5.2% in the best easy-access saver, and 5.24% in the best one-year fixed-rate account.
Let’s look at what this means in real terms. If you have £20,000 in savings, a 1% savings account will return you a measly £200 per year in interest. Meanwhile, a 5% savings account will generate £1,000.
In other words, when it comes to knowing your rate, knowledge is wealth.
Shopping around for the best savings rate
“Those savers who have not reviewed their savings pots for a few months should do so now or they could end up missing out on a better deal,” says Rachel Springall, finance expert at Moneyfacts.
“As we have seen over the years, loyalty does not always pay, and as some institutions increase their easy-access rates, there are other brands paying less than the market average,” she adds.
Savings rates have fallen slightly from their peak last year as the prospect of a rate cut from the Bank of England looms, however there are still some fluctuations as providers bring new deals to the market and pull others.
For example, Chase recently launched a new bonus offer on its easy-access savings account, taking the overall interest rate to 5.1%. This is the third-best deal on the market at present. However, the underlying rate is linked to the base rate and will start to fall once the Bank of England cuts rates.
By knowing your rate, you can be vigilant to cuts and switch providers if you are not happy. Knowing your rate also allows you to make an informed decision on whether to fix your savings as interest rates start to come down.
Women, renters and singletons most likely to miss out
“There’s a strong correlation between those people who tend to have less savings and those who don’t know what they’re making in interest,” says Sarah Coles, head of personal finance at Hargreaves Lansdown.
“This includes women (at 35% compared to 19% of men), renters at 38% and people who are single after coming out of a relationship, at 36%,” she adds. Coles explains that these groups may feel they don’t have enough in savings to worry too much about the rate.
That said, Coles also points out that younger savers (those aged 18-34) are pretty savvy when it comes to shopping around for the best rate, so this argument starts to lose pace when you consider that younger savers typically have smaller balances in their accounts.
It could also be a case of how busy people are. “Those aged 35-54 may well have caring responsibilities – either for their children or their parents or both,” Coles explains. This would help explain why women are less likely to know their savings rate than men, as they are disproportionately impacted by caring responsibilities.
This compounds the other gaps women already face – from the gender pay gap, to the pension gap, to the investment gap. Holly Mackay, CEO of Boring Money, recently pointed out that the gender investment gap in the UK is around the size of the GDP of Poland.
Like the pension and investment gap, the “savings rate gap” will continue to compound over time as savers earn interest on interest. If your rate is low, you will be less exposed to the benefits of compounding than a saver with a high rate, as the below table shows.
1% account versus 5% account, compounded daily over 10 years
| Year | Balance in 1% account | Balance in 5% account |
|---|---|---|
| Initial lump sum deposited | £20,000.00 | £20,000.00 |
| End of year 1 | £20,201.00 | £21,025.35 |
| End of year 2 | £20,404.02 | £22,103.27 |
| End of year 3 | £20,609.08 | £23,236.45 |
| End of year 4 | £20,816.20 | £24,427.72 |
| End of year 5 | £21,025.41 | £25,680.07 |
| End of year 6 | £21,236.71 | £26,996.62 |
| End of year 7 | £21,450.14 | £28,380.67 |
| End of year 8 | £21,665.72 | £29,835.68 |
| End of year 9 | £21,883.46 | £31,365.28 |
| End of year 10 | £22,103.39 | £32,973.30 |
In addition to the £10,000 in simple interest over a period of 10 years, the 5% interest rate account has generated an additional £2,973.30 thanks to compounding. Meanwhile, the 1% account has generated £2,000 in simple interest, and only £103.39 from compounding.
Of course, if you’re able to lock your money away for a long period like 10 years, you might want to consider the stock market where you could potentially earn a better return still.
The stock market almost always beats cash returns over the long run, if you invest sensibly in a diversified portfolio. However, you have to be willing to take on some investment risk and accept higher volatility. See our piece on saving versus investing.
How do I check my savings rate?
If you log into your online banking account or check a statement, you should be able to find out what rate your savings account is currently paying. If your provider changes the rate on your account, they should get in contact with you to let you know.
You can then check a price comparison site to see how your rate stacks up against other providers. It is important to read the terms and conditions carefully, as some accounts limit the number of withdrawals or have maximum or minimum deposits that the rate applies to.
The most important thing is to make sure the provider you choose is covered by the Financial Services Compensation Scheme, as this protects balances up to the value of £85,000, in the event your provider goes bust.
“Don’t forget to consider the period of time you’re holding your savings for too. You may have the best easy-access rate, but if you don’t need a portion of this cash for a year or longer, you could tie it up in a fixed-rate savings account, so you can guarantee the rate for longer,” says Coles.
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