Savings balances dwindle in increasingly lacklustre accounts
Savers face increasingly lacklustre rates as more than a third (34%) of instant access accounts pay 0.1% interest or less.
Many households that managed to spend less during lockdown turned to easy access savings accounts to house their cash.
UK savers added £11 billion to easy access deals between the start of March and the end of April 2020, four times as much compared to the same period last year, according to research by Paragon Bank.
However, more than £176 billion of savings is currently sat in low-interest easy access accounts with interest rates of 0.1% or below.
Experts warn that savers could be missing out on valuable interest by not shopping around for a better deal.
Michael Helsby, managing director of savings for Paragon Bank says: “The low rate of interest received on many easy access balances suggests that a lot of savers are putting money aside without seeking a competitive interest rate. Many are likely to be opening accounts linked to their current account for ease of access, but those often pay a lower than average rate of interest.”
If savers receiving a rate of 0.1% or below moved their funds to an account paying 0.5%, this would generate £704 million of additional interest paid.
Why are savings rates so low?
UK savings rates have fallen to the lowest level on record in recent weeks.
Most savings providers began to slash interest rates on their accounts following the Bank of England’s decision to reduce the base rate twice this year to 0.1%, its lowest level in history.
This, coupled with continued uncertainty surrounding the coronavirus pandemic, caused the UK savings market to deteriorate significantly since the beginning of the year.
Best easy access savings accounts
The best easy access savings deal is NS&I Income Bonds, which pay 1.16%. These can be taken out with a minimum deposit of £500 online, by telephone or by post.
This is followed closely by Family Building Society's Market Saving Tracker which offers 1.13% for balances of at least £500. The account can also be opened online, via telephone or post.
Cynergy Bank offers the third-best rate, paying 1.05% of deposits of at least £1. This account can only be opened online.