By David Prosser
“Your savings are what you make of them.” That’s the message from the Building Societies Association as it prepares for UK Savings Week, due to run from 22-28 September. It’s an annual campaign aimed at persuading more Britons to save – given that 14 million people have less than £100 in emergency savings – but also, critically, at getting people to “save smarter”. In particular, the Building Societies Association is concerned about the millions of savers who between them are currently sitting on £300 billion held in bank and building society accounts that don’t pay a penny of interest. All of them are missing out on the opportunity to grow their money – in other words, they’re not making anything at all of their savings.
The organisation might have added, by the way, that there is another group of savers – potentially an even larger one – who are also failing to save smarter. These are savers with money in accounts that do pay interest, but which offer poor rates compared to market-leading savings products. For both groups, UK Savings Week could – and should – prove to be a useful spur to action. If it has been some time since you checked how the interest rates on your savings cash compare to what is available elsewhere, now is the time to do so. And if you’re getting an uncompetitive deal – no interest at all or a low rate – it usually makes sense to move your money.
Call to action
City regulators are also concerned that too few people are saving smarter. Two years ago, the Financial Conduct Authority unveiled a review of the cash savings market, concluding that savings account providers did not always do enough to ensure customers were earning attractive interest rates on their cash. A year ago, it published an update on that investigation, warning that some banks and building societies were still falling short.
One outcome of the FCA’s work has been to focus savings providers’ minds on the new Consumer Duty regulation which came fully into force in July 2024. The goal of this reform was to ensure the public receive better value from a wide range of financial services and products; in the context of the savings market, this means providers should be taking action when customers are missing out on decent rates of interest – either by paying more or by making sure these customers know they may not be getting a good deal.
You may already have noticed one tangible impact of the changes. Written communications from savings providers to customers now routinely feature warnings that they may be able to secure better interest rates by moving their money to another product at a different bank or building society. If you’ve received such a warning, don’t ignore it. Like UK Savings Week, the aim here is to encourage you to make the most of your savings – to ensure that your money is working as hard as possible on your behalf.
The cost of doing nothing
It’s easy to underestimate just how much money is at stake – even for savers who aren’t stuck in accounts paying no interest at all. When the FCA published its update last year, it pointed out that the average easy access savings account paid 2.11% in annual interest, but that there were 174 accounts paying more than 4%. The exact figures will have changed since then – not least as the Bank of England has reduced base rates – but the big picture hasn’t shifted. The best savings accounts on the market consistently pay rates far superior to the average products.
United Trust Bank’s Easy Access Account is a case in point. It now pays 4.30% Gross/AER* on a minimum balance of £5,000. That compares to less than 2.5%, on average, from similar accounts across the rest of the market. On a £5,000 balance, that’s £75 of interest going begging – and over time, and on larger sums, the cost of not saving smarter will really begin to add up.
Never be afraid to move pots of underperforming savings. And do your best to identify cash that could be working harder. Are you maintaining an unnecessarily high balance in your current account, for example? If so, it is likely to be earning negligible rates of interest, if anything at all; there may be efficient and prudent ways to sweep some of that money into an account where it is generating a more meaningful return.
Get moving
It’s even more important to take action in a fast-moving market. If UK Savings Week doesn’t encourage you to review your savings, take your cue from August’s decision by the Bank of England’s Monetary Policy Committee to cut base rates. Some providers have passed on those reductions to savers; others have held back. The overall effect has been to once again change the dynamics of the savings market, with different accounts now looking more competitive than others.
Further base-rate reductions are expected in the months ahead, though August’s inflation figure – unexpectedly high at 3.8% – may prompt the MPC to hold back for longer than expected. It remains important to be vigilant about what you’re earning – in a low-interest rate environment, getting every penny possible is vital. There are no short-cuts – you need to review your savings portfolio regularly to stay on top of this issue, and to be prepared to act when you see you’re missing out. No-one can do that for you.
Still, UK Savings Week is a useful reminder to check back in. Savings providers would like you to save more – that may or may not be possible (and sensible) for you, but you should certainly heed the information to save smarter.
*AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Gross is the interest rate without the deduction of income tax. Interest is paid gross into your account.
Although this article may contain helpful information and tips, these are not personal advice. You may wish to seek advice from a financial advisor if you are unsure what’s best for your own personal circumstances.