Inertia amongst British savers is peaking as new research shows that £1.20 in every £10 is now being held in cash accounts that pay no interest.
A major new report by The Centre for Economics and Business Research (Cebr) on behalf of Flagstone, the UKs leading cash savings platform, reveals that savers are holding near-record levels of cash in accounts that pay zero interest, such as current accounts.
The total level of UK household cash deposits held in non-interest-bearing accounts has rocketed from £33 billion in early 2008 to £170 billion now – equivalent to 12% of all household cash deposits and more than triple the share of this market in 2008.
Meanwhile, the amount of cash being held in instant access accounts, which typically pay the lowest rates of interest, has increased from approximately £500 billion in 2008 to £746 billion now.
Over the same period, the amount of cash held in fixed-term deposit accounts, which historically paid higher levels of interest, has fallen 42% from a peak of £286 billion in May 2012 to £165 billion now.
This could be because the interest rate differential between fixed-term and instant access accounts has fallen from 4 percentage points to 0.6 percentage points in the past 10 years.
The report also reveals that savers are missing out on up to £7 billion a year in interest because they are failing to shop around for a better deal.
The so-called ‘Big 5’ banks – Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander – hold £827 billion of the £1.3 trillion in household deposits, or 63% of the market, despite paying significantly lower rates of interest on average.
Cebr’s research shows that savers with the Big 5 banks could earn a maximum of £3.4 billion interest on their cash savings in the next 12 months but could potentially be earning up to £7 billion* more if they switched to leading rates available from smaller ‘challenger’ providers.
A survey of 4,207-UK adults**carried out by YouGov, accompanying Flagstone’s new report, reveals that more than four in 10 savers would consider switching accounts if they could achieve an extra 1 percentage point on their savings. Given that many challenger banks are already offering rates which are at least 1 percentage point higher than their Big 5 rivals, this suggests that many savers are not fully aware of the deals on offer in the market, or are put off by the hassle of opening and maintaining new deposit accounts.
Andrew Thatcher, Co-Founder and Co-Managing Partner of Flagstone, said:
“The fact that more than more than £1 in every ten of the UK’s household deposits is currently languishing in an account which pays no interest at all, reveals the extent to which a decade of persistently low rates in the high street has resulted in widespread inertia amongst the nation’s savers.
“The data shows that many people are not moving their savings to a different provider these days even though there is a pretty sizeable difference in the rates offered across providers. This suggests that people are put off of proactively managing their savings because of the time that it takes and the hassle involved in opening new accounts.”
Thatcher concludes: “Technology provides the solution. Flagstone’s platform removes the barriers to switching by giving individuals, businesses, and charities the opportunity to open, manage and receive reporting on multiple deposit accounts through a single interface. Clients can access market-leading and exclusive rates from an extensive panel of UK and offshore banks and building societies with experience showing that a typical client using our platform for the first time can increase their interest income by up to 1000%”