One in Five Savers Stash Money in Current Accounts Paying 0% Interest

More than a fifth (22%) of savers leave some of their money to moulder in current accounts, missing out on returns and seeing inflation erode their hoard’s value, according to new research.

The problem has escalated since the pandemic, as many people built up savings when opportunities to spend dwindled, then didn’t feel motivated by sinking interest rates to move it to savings accounts. We now have £250 billion in savings earning no interest at all, up by a fifth in a year and almost 50% since 2019, Hargreaves Lansdown found.

“Part of the problem is that although significant numbers of people have built up far more in savings during the pandemic, a huge number of them haven’t moved their money anywhere, and are just sitting on it in their current account,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

But while savings rates are certainly low, they’re still higher than the paltry 0.01% or 0% paid on current accounts.

The most common reasons savers give for leaving cash in a current account is that it’s then easy to access those funds in an emergency (cited by 44%) and that it’s not worth moving it elsewhere while savings rates are so low.

15% admitted they just hadn’t got around to moving their money. This was a particularly common reason supplied by young people (28%).

Just 16% of people said they leave their money in their current account because they’re getting a good return there.

This current account trap most affects savers over 55, nearly a third of whom stash savings in a current account. Men (24%) are also more likely than women (19%) to recruit their current account as a savings account.

However, with inflation at 3.2% in September—and forecast by the Bank of England to push 5% by April—current account savers will see their savings erode faster than average.

Coles said: “If, for example, you have £30,000 in a current account, and inflation was running at 4%, after a year, your money would have the same buying power as £28,800 today, so it would have lost £1,200 of spending power.”

While you’ll struggle to find a savings product that outpaces inflation, you can limit your losses by keeping money in a competitive savings account. Coles said that if you moved the same £30,000 to a one-year fixed rate savings account paying 1.76% interest, you would only lose £672 of spending power at 4% inflation.