Why now is the time to ditch your 1% savings

New data reveals almost £400 billion is earning 1% interest or less in current accounts and savings. Here’s why you need to act now to earn five times more on your cash savings

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(Image credit: Dilok Klaisataporn)

Savings accounts have been a hot topic in the past year with rates flying to a 15-year high, and now you can earn inflation-busting rates for the first time since 2021. 

But not everyone has jumped on the savings hype. 

Despite sky-high rates on the best savings accounts, around 400 billion pounds are sitting idle in UK current accounts and savings earning 1% interest or below, new data from Yorkshire Building Society and data consultancy CACI reveals.

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As part of the research, the building society surveyed 2,000 people and found around half of the participants dipped into their savings in the past year, and felt they needed £4,000 accessible. 

“Loyalty does not always pay on savings accounts and the convenience of using a current account is costing consumers in interest they could earn elsewhere, as many bank accounts pay little or no interest,” says Rachel Springall, a finance expert at Moneyfacts.

Find out why you need to act now to earn five times more on your savings, and the best savings rates on the market right now. 

Why you need to act fast to bag 5% savings 

According to Hargreaves Lansdown, an average high-street bank savings account currently offers a 1.69% return on average. 

But the latest data from Moneyfacts shows you could be earning an average 3.16% on an easy-access savings account, and an average 4.76% on one-year fixed savings. 

However, you will need to act fast as the best savings rates have already started to disappear, and Moneyfacts data reveals the average one-year fixed savings products show their biggest fall since 2009. 

This comes after the Bank of England put a stop to interest rate hikes, and has paused the base rate at 5.25% at its last three meetings

Plus, inflation slowed to 3.9% in November, and the market is expecting another fall in inflation in December- which could push interest rates down. 

As a result, savings could plummet further below the 5% mark, which is why time is of the essence for savers to bag a good deal. 

Mark Hicks, head of active savings at Hargreaves Lansdown warns: “The savings market has already reacted to future expectations of rate reductions from the Bank of England, with longer fixed term rates lower by over 1% compared to six months ago.”

MoneyWeek has been tracking the best savings deals, and saw one-year fixed bonds reach dizzy heights of more than 6% with NS&I’s 6.2% one-year fixed saver- but this was pulled within five weeks of being on the market. 

Metro Bank also withdrew its 5.66% market-leading one-year fixed saver just a week ago due to popular demand- a sign that the best rates are not sticking around for long. 

Easy access accounts have been falling steadily compared to fixed savings, but in December, we saw four easy access savings deals pulled and three accounts fall in rate. 

Hicks pushes savers to act imminently to bag the best rates: “With only a handful of banks still paying above 5% in fixed term rates, there is only a limited amount of time that savers will still be able to grab one of these deals.

What are the current rates on the market? 

Right now, the best savings account on the market is offered by Nationwide, with its 8% regular saver- but there are some caveats. 

You must be a Nationwide Flex account holder and you can only deposit up to £200 per month. The good news is that there is no minimum monthly deposit, but you can only withdraw up to three times a year. 

Easy-access accounts

If you’re looking for more flexibility, you would be better off with an easy-access account. Metro Bank is currently the top-paying deal, with its 5.22% Instant Access Saver

Natwest-owned Ulster Bank is also offering an attractive 5.2% on its easy access saver which can be opened with just £1. This product has been the longest-standing deal on MoneyWeek’s easy-access savings guide. 

Fixed savings

You can earn even more on your savings if you’re willing to fix your cash, but deals on fixed savings are disappearing fast- so you will need to act quickly. 

Currently, the top one-year fixed savings account is by Al Rayan Bank, offering 5.5%. This is a Sharia-compliant bank which means you will earn an expected profit rate. 

The next best offer is Investec Bank one-year Fixed Rate Saver offering 5.3%. This account can be opened online but it requires a minimum deposit of £5,000. 

If you’re looking for a low deposit amount as low as £100, you might be better off with an easy access account, as the top five one-year fixed deals require at least £1,000 to get started. 

Plus, after the third-best one-year fixed deal, the rate you earn drops to 5.2%. So, you could earn more on Metro Bank’s easy access saver. 

Vaishali Varu
Staff Writer

Vaishali has a background in personal finance and a passion for helping people manage their finances. As a staff writer for MoneyWeek, Vaishali covers the latest news, trends and insights on property, savings and ISAs.

She also has bylines for the U.S. personal finance site Kiplinger.com and Ideal Home, GoodTo, inews, The Week and the Leicester Mercury

Before joining MoneyWeek, Vaishali worked in marketing and copywriting for small businesses. Away from her desk, Vaishali likes to travel, socialise and cook homely favourites