UK households are still holding £233 billion in accounts that pay zero interest, despite rapid rises in interest rates and high inflation eating away at household savings, says Bowmore Asset Management.
The £233bn that is held in zero-interest accounts in 2023 is over double the £109bn that was held in zero-interest accounts in 2013, shows Bowmore’s analysis.
Even following the Bank of England’s repeated increases in interest rates since late 2021 from 0.1% to 4.25%, savers have continued to add to zero-interest accounts, rather than shopping around for better deals. An increasing number of current accounts now offer interest. The amount in zero-interest accounts rose from £231bn in November 2021 to £233bn in February 2023.
With the Bank of England expected to raise interest rates again to 4.5%, savers are being warned to consider moving their money into higher-interest accounts as soon as possible.
Charles Incledon, Client Director at Bowmore Asset Management, says that many savers are missing out on the interest rates offered by ISAs and fixed-rate accounts. With inflation at 10%, these products provide much better value as inflation continues to eat away at the value of savings.
Charles Incledon, says “With inflation and interest rates both still high, there is no good reason for people to keep more than their day-to-day cash requirements in zero-interest accounts.”
“Savers have got used to a decade and a half where interest rates were effectively zero and there was little point shopping around for a better deal on your savings. Those days are long gone.”
“There are an increasing number of instant access accounts that pay interest and more ISAs offering more than 3% interest – or even more than 4% if you’re willing to lock your money up for two years.”
“People need to be aware that savings in a zero-interest account are being eaten away at an alarming rate at the moment. Inflation is still above 10% – at that rate you’re losing 10p in every pound in your savings in a single year.”
Money in zero-interest accounts still at record high even as interest rates climb
*Zero-Interest Accounts outstanding (Year-end Feb 28), source: Bank of England
