BRITS have been urged to check the interest rates on their savings accounts to see if they’re losing any cash.
Investec is warning savers that one in four instant access accounts still offer zero or negative returns.
Instant or easy-access savings accounts are ideal for people who want to put money on the side with some flexibility and be able to dip in or out of their savings as they want.
These accounts usually come with minimal restrictions and can help you stay afloat during the cost of living crisis.
However, if the interest rate is equal to or below inflation, cash kept in these accounts is losing value or failing to make a return, and might not always be the best choice.
Consumer price inflation is currently 2%, but data from Investec Bank shows that 47 out of 202 instant access accounts (23%) pay a rate equal to or lower than 2%.
In practical terms, this means savers are either earning no interest or getting negative real rates on their money.
The analysis, carried out by Andrew Hagger of Moneycomms, found that 13 instant access savings accounts pay 2% – the same rate as inflation.
However, 34 accounts pay even less than 2%, with the lowest rate being 0.5%.
The research also found a 30-day notice account paying less than 2% inflation and offering a real return of -0.2% – less than the amount of money you will have put aside.
David Hunt, head of retail savings at Investec, said: “Inflation has fallen consistently since hitting a high of 11.1% back in October 2022 but many savings providers have not kept up and are still paying zero or negative real rates.
“Savers are seeing the value of their savings fall.
“With inflation back at the Bank of England’s target 2% rate and expected to remain around that mark it is more important than ever that savers focus on real rates of return when choosing accounts so that they are earning interest and the value of their money is increasing.
“Unfortunately that is not always the case and too many instant access accounts either pay less than inflation as well as relying on bonuses to boost headline rates making it confusing for savers looking for the best account for their circumstances.”
Investec has looked at the average rate before inflation for instant access, one-year, two-year, and three-year bonds as well as notice accounts plus the real rate after inflation at 2%.
| Type of account | Average rate | Average real rate |
| Instant access | 3.21% | 1.21% |
| One-year bond | 4.67% | 2.67% |
| Two-year bond | 4.35% | 2.35% |
| Three-year bond | 4.22% | 2.22% |
| Notice accounts | 4.29% | 2.29% |
Just weeks ago, we reported that there are still zombie accounts out there that are punishing loyalty with a very low interest rate.
Zombie accounts are ones that have closed to new customers and, as a result, have slashed the interest rate.
Loyal customers who have not shifted their money to a new account are usually left earning less than 0.5 per cent.
Anna Bowes, co-founder of SavingsChampion.co.uk, said: “It’s shocking to see that even though the base rate has increased, there are many savings accounts that are still paying less than inflation.
“And some have not seen a single increase for many years.
“Virgin Money and Saga, for example, are still paying just 0.25 per cent AER on a number of old, closed accounts. In the meantime, you can earn over 5 per cent AER elsewhere.
“On a balance of £1,000, rather than earning just £2.50, by switching you could earn £50 a year instead. It’s like free money.”
But savers can still find good rates, with one of the best accounts – Ulster Bank‘s Loyalty Saver – now paying an Annual Equivalent Rate (AER) of 5.2% on deposits of over £5,000.
A lower rate of 2.25% is applicable to deposits under £5,000.
Meanwhile, Oxbury Bank is offering an AER of 5.02% to savers with a minimum deposit of £20,000 on its Easy Access Account Limited Edition One.
The maximum amount of money that can be invested is £500,000 and interest is paid monthly.
If you have a smaller deposit, you could consider opening a savings account with Cynergy Bank offers an AER of 4.94%.
You’ll need a minimum deposit of £1, but overall up to £1 million can be invested and there are no restrictions on withdrawals.
Many savings accounts offer miserly rates meaning that money is generating little or no return.
However, there are ways to get your cash working hard. Sun Savers Editor Lana Clements explains how to make sure you money is getting the best interest rate.
Easy access savings accounts offer flexibility for customers, meaning they can dip in and out of cash when needed. However, the caveat is that rates can change at any time.
If you’re keeping your money in an easy access account, you’ll need to keep checking whether it’s the best paying account for your circumstances and move if not.
Check in at least once a month to see what is happening in the market.
Check what is offered by your bank – sometimes the best rates are for customers only.
But do search the wider market as often top savings accounts are offered by lesser known providers.
Comparison sites are a good place to check for the top rates. Try Moneyfactscompare.co.uk or Moneysupermarket.
You can search by different account type. You’ll usually get a better interest rate if you can lock your money away for a fixed amount of time, but it’s always a good idea to keep some money in an easy access account in case of emergencies.
Don’t overlook regular savings accounts often pay some of the best rates, but you’ll need to commit to monthly payments. This can be a great way to get into a savings habit while earning top rates at the same time.
Investec also has its own accounts such as the Online Flexi Saver, an instant-access savings account that pays an interest rate of 4.70% monthly on balances of between £5,000 and £250,000.
This kind of account provides instant access to savings and allows unlimited deposits and withdrawals to a linked current account.
The company’s 90-Day Notice Saver pays 5.25% on balances of between £5,000 and £250,000.
It also offers unlimited deposits with withdrawals subject to a 90-day notice period.
The Fixed Rate Saver pays an interest rate of 5.04% over a one-year fixed term, 4.70% over a two-year term or 4.45% over a three-year term on balances of between £5,000 and £250,000.
Interest is paid on maturity on the 1-year and annually on the 2-year and 3-year.
No withdrawals are permitted until the end of the term, and no further deposits can be made after the first seven days, Investec said.
If you are trying to find the best savings rate there are websites you can use that can show you the best rates available.
Doing some research on websites such as MoneyFacts and price comparison sites including Compare the Market and Go Compare will quickly show you what’s out there.
These websites let you tailor your searches to an account type that suits you.
There are three types of savings accounts fixed, easy access, and regular saver.
A fixed-rate savings account offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term.
This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account.
Some providers give the option to withdraw but it comes with a hefty fee.
An easy-access account does what it says on the tin and usually allow unlimited cash withdrawals.
These accounts do tend to come with lower returns but are a good option if you want the freedom to move your money without being charged a penalty fee.
Lastly is a regular saver account, these accounts generate decent returns but only on the basis that you pay a set amount in each month.
Markets expect the Bank of England to cut its base rate in August this year after policymakers kept it at 5.25% in June.
This is important for banking customers because high-street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
High street banks have used the BoE’s decision to hold rates to their advantage.
Instead of fighting to offer the best deal, banks are more likely to maintain rates at their current levels – and in some isolated cases make small cuts.
With your current rates in mind, don’t waste time looking at individual banking sites to compare rates as doing so would take too long.
You can visit comparison websites such as MoneyFactsCompare, Go Compare, and MoneySupermarket.
These will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
There are five main types of savings accounts, and understanding the differences can help you narrow down the options.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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