2.3m people with bank accounts warned 'you're seeing money shrink'

A new study has found that savers are losing out on hundreds of millions of pounds of interest every year

New research suggests that savers are essentially "seeing their money shrink" by leaving funds in low-interest bank accounts. Paragon Bank's review of CACI data indicates that as many as 261,000 adult savings accounts, each with over £10,000, were earning one per cent less in interest as of July 2024.

A substantial count of around 8,500 accounts had balances of at least £100,000 still collecting the same minimal returns. The figure rises considerably with 42,700 accounts holding £50,000 or more. Overall, these account holders are collectively missing out on approximately £258million worth of interest every year.

With £8.6billion residing in the 250,000 affected products, this implies an average balance of £32,811 per saver. These calculations reveal that each should be accruing £328.11 annually based on a one per cent interest rate, adding up to a sizable £85.9million for the group.

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Conversely, shifting to an account offering four per cent interest would markedly increase earnings to £1,312.42 per account or a staggering £343.8million in total each year.

Looking at the broader picture, the UK's entire adult cash savings market sees about 2.3 million interest-bearing savings accounts yielding one per cent or less, encompassing a vast sum of £10.1billion. Derek Sprawling, Savings Managing Director at Paragon Bank, highlighted the importance of savers proactively seeking better rates to avoid financial loss.

He pointed out: "Given the range of providers paying generous rates of interest available across the market, it's remarkable there are still savers with large balances still accepting returns of one per cent or below."

"These savers are seeing their money shrink in real terms as their return remains below inflation and, collectively, are missing out on over £250million in interest."

"The savings switch message can often get ignored by those with smaller balances, which can be understandable given the relatively small increase in returns, but those with sizeable deposits have a real and genuine incentive to move their money."

In recent financial developments, British savers have seen a boost from the Bank of England's decision to hike the base rate to a 16-year peak, stepping up the battle against inflation.

However, the Bank has recently cut interest rates from 5.25 per cent to five per cent, marking a victory for borrowers but dealing a blow to high interest accounts.

As the consumer price index (CPI) rate dips towards the central bank's two per cent target, further rate reductions seem likely, prompting a call for savers to seize competitive offers while they're still around.