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Millions of savers are missing out on billions of pounds’ worth of savings interest a year by leaving their money languishing in current accounts paying no interest at all.
Despite it being possible to earn returns of around 4.5% or more from some easy access savings accounts, savers hold a staggering £280 billion in current accounts which pay zero interest, meaning that the purchasing power of their cash is being gradually eroded by inflation.
Derek Sprawling, Managing Director of Savings at savings app Spring, said: “There are 74 million current accounts in credit in the UK earning zero interest and these do not simply comprise small balances, with 6.6 million containing £10,000 or more. Inflation now stands at 3.5%, so making sure your money is working as hard as it can is imperative to retain its value.”
According to website Moneyfactscompare.co.uk, there are more than 1,300 savings accounts offering returns that outpace the rising cost of goods and services, so there’s no excuse not to be earning inflation-beating returns. However, this number is down by more than 200 compared to the previous month, so don’t delay if you want to take advantage of competitive rates.
The real cost of savings inertia
It’s not just those who keep their savings in current accounts that are missing out. Even if you do keep your money in a savings account, when did you last check how much interest you’re earning?
You might have picked an account a while back because it was offering good returns, but that doesn’t mean your provider hasn’t cut rates subsequently. According to research carried out by Hargreaves Lansdown, a third of savers haven’t switched their savings in the past five years (33%), whilst almost a quarter have never switched (23%).
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The high streets have been far quicker to cut rates than the most competitive on the market, so the gap has opened significantly – with the most competitive offering 4.55% on easy access savings, and the average high street offering just 1.2% on £20,000 of savings.
“Six months ago saving £20,000 in the most competitive account had the potential to make £674 a year more in interest than the average high street banks. Bank rate cuts in the interim has widened this difference to £688. At times of falling rates, we’re less likely to switch because we can’t see the hope of a great rate elsewhere, and we’re less excited about minimising the damage than we were about making the most of rises. People worry that rates might fall again after they’ve moved, or that lower rates aren’t worth the effort involved.
“Yet this is the time when switching accounts can be particularly rewarding. If you were already with a high street giant that offered less to begin with, and is now cutting rates, the difference between the best rates on the market and a typical offering from the high street is stark, and there’s hundreds of pounds a year to be made from the switch.”
Ideally you should commit to checking how much interest you’re earning on your savings at least every six months, and if your returns have noticeably decreased, it’s worth seeing if you could do better elsewhere.
Top 5 Easy Access Accounts
What are the different savings options?
There are numerous different types of savings accounts to choose from, but a good starting point is to decide whether you want an easy access account offering variable returns, or whether you’re comfortable tying your money up in a fixed rate account offering returns which won’t change during the account term. You can find out more about fixed rate accounts in our article Where can I find the best fixed savings accounts?
Ms Coles said: “There’s one very strong reason not to fix – if you need it for emergencies, which was the answer given by almost two in five (38%) of those people who refuse to fix. This money should be in a competitive easy access savings account, so you can get your hands on it as soon as you need it.
“However, if this is your reasoning, you need to think about how much you really need for emergencies. As a rule of thumb, people who are working age should have enough cash to cover 3-6 months’ worth of essential spending, while those who are retired should have enough for 1-3 years. This means they’re able to cover short-term emergencies, and have enough time to rebuild their savings.
“If you have more than this set aside for emergencies, you’re missing out on the benefits of a fixed rate. It means you need to separate your savings into chunks, so you have cash for emergencies in an easy access account, and cash for planned expenses further down the line, fixed for the periods that make the most sense for you.”
Top 5 Fixed Rate Accounts
Tax matters
When choosing a savings account, it’s also vital to consider your tax situation, and how much of your returns you might have to hand over to the taxman.
Everyone has a basic Personal Allowance, which is set at £12,570 in the current 2025/26 tax year. This is the amount you can earn in income each year before paying tax. Most people also have what is known as a Personal Savings Allowance, which applies to your savings and investments exclusively. This lets you earn a certain amount of income from your savings and investments without having to pay tax on it.
Basic rate taxpayers have a yearly Personal Savings Allowance of £1,000, while higher rate taxpayers get a £500 Allowance. Additional rate taxpayers do not receive a Personal Savings Allowance. If you exceed your Personal Savings Allowance, then you’ll usually pay income tax on any returns your savings make in excess of your Allowance.
If you think you may have to pay tax on your savings returns, the best way to avoid this is by sheltering your savings in a tax-efficient cash individual savings account (ISA). You can learn more about cash ISAs in our guide How cash ISAs work and about the tax treatment of savings returns in our article Are you paying unnecessary tax on your savings?
According to latest data from the Bank of England a massive £14 billion was piled into Cash ISAs in April alone, amid speculation that the government could tinker with ISA allowances as part of its review into the accounts. Find out more in our article ISA changes in 2025: what you need to know.
Andrew Wright, Head of Savings at Paragon Bank, said: “It is little surprise that we saw a surge in cash ISA savings in April and one of the busiest ISA seasons on record as savers rushed to beat the deadline and then took advantage of this tax year’s new subscription.
“No doubt, cash ISA savers were also ensuring they fully utilised their £20,000 allowances given the rumours of the Government seeking to reduce the cash limit in future tax years. In our view, that would be a mistake and undermines confidence in one of the UK’s financial services success stories; ISAs have made a tangible difference to people’s savings.”
As with any other savings account, if you’re considering a cash ISA, make sure you choose an account paying competitive returns. Recent analysis of CACI data by savings app Moneybox found that as of January 2025, a staggering £50 billion was sitting in more than 7m easy access Cash ISA accounts earning 2% interest or less, which means these savings are losing value in real terms.
For example, if you have £20,000 sitting in a cash ISA paying 2%, you’d earn £400 in interest over a year. However, that same £20,000 would earn double this at £800 if deposited in an ISA paying 4%. You can find the current top cash ISA rates in our article Best cash ISA rates – which cash ISAs pay the most interest?
Brian Byrnes, Head of Personal Finance at Moneybox, which currently pays 5.46% on its cash ISA (the rate includes a 1.51% bonus for three months) said: “Now is not the time to be complacent with your finances. With inflation still a risk and market volatility causing concern, savers need to be proactive in building solid foundations for their financial future. The start of a new tax year is an ideal time to pause, take stock and see if there are any quick wins you could take advantage of – starting with your savings.
“One silver lining in recent years is that savers have benefited from far more competitive interest rates but we cannot take this for granted. Every day we see just how diligent and committed UK savers are when it comes to working towards their financial goals, but this data shows there is still work to be done. Many of us are guilty of letting our money languish in accounts that are no longer providing good value. The time to act is now.”
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