72% of savers don't know how much interest they earn - do you?
Fewer than three in ten adults know what interest they’re getting on their savings, according to a survey commissioned by a property investment company.
A further two-fifths of adults have never switched savings accounts to get a better rate of return, according to the poll of 2,000 adults by property crowdfunding website Property Moose.
Nine percent of people say this is because “all rates are the same”, while around one in five people say that switching is too much hassle.
Andrew Gardiner, founder of Property Moose, says: “It’s concerning that one in four savers in this country not only have never moved their money to obtain a better rate, but also that the majority aren’t fully aware of how much interest their money is earning.
“Banks may be hiding important information in jargon, and are not necessarily acting in the best interests of their customers. Finding out how your money is working for you shouldn’t be onerous, and there is clearly a need for greater transparency in traditional financial institutions.”
Property Moose’s research echoes a study by the regulator, the Financial Conduct Authority (FCA), into the savings market which found that 80% of people with easy-access savings accounts haven’t switched for at least three years, and half of people with savings accounts don’t know how much interest they are earning.
The graph below (which you can click to enlarge) details the percentage of people who didn’t know their interest rate.
Additionally, a report from the FCA in December found several banks and building societies pay as little as 0.01% interest on money in old savings accounts, with two brands paying no interest at all on some savings accounts and Isas.
Where are people turning for better returns?
As a result of the poor rates on offer, many people are looking to investments for a better return on their money. Property Moose’s research says three times as many people expect property investments to deliver the best returns, compared to any other types of investment.
Mr Gardiner says that, UK residential property has outperformed most asset classes in the UK over any given ten-year period.
However, while UK house prices might have seen huge increases, particularly in the last 30 years or so, many property funds have been frozen due to market turbulence following the EU Referendum result.
Investment charges can also eat into any returns. The cost of investing in property is much higher than investing in funds. Stamp duty, estate agent fees, legal fees, and mortgage fees can significantly add to your bill and letting agents typically charge 8% (or more) of any rental income you receive.
When people invest in Property Moose, 5% of their money is taken as an up-front fee to cover the cost of investing in funds. The platform will also take 15% of any capital returns from its investments, and 12% of rental income is taken to cover estate agent fees and VAT.
A typical actively managed fund might charge 0.75% of your investment each year, and passive funds can charge less than 0.1% a year.
- You can see the full list of Moneywise’s First 50 Funds for our best ideas for beginner investors in the July magazine, now on sale in W H Smith stores.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.