Savings warning as millions open accounts earning 1.5% interest or less

Britons are being urged to “shop around” as new research shows millions of savers are missing out on high-interest accounts.

According to a new analysis by Paragon Bank of CACI data, nearly one in six new fixed and instant access savings accounts opened in the 12 months to August 2023 offered a rate of 1.5 percent or less, equating to 1.8 million accounts.

By value, £28.3billion was placed in newly opened fixed and instant access accounts earning 1.5 percent or below, with £26.5billion of that placed in instant access variants.

CACI compiles the savings deposits of 35 leading providers of cash savings. A new account is classed as one funded with at least £1 and has an open date within a specific month.

The mentioned account balances are as of the conclusion of the month in which they were opened.

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The research shows that savers were considerably more likely to receive lower rates on instant access accounts. Of the total number earning 1.5 percent or below, 96 percent had instant access accounts.

At the opposite end of the scale, 3.9 million accounts were opened with rates paying above four percent. Of those accounts, 2.8 million were for fixed-rate deals, with £82billion deposited.

Derek Sprawling, savings director at Paragon Bank, said: “Whilst it is encouraging that savers are opening new accounts, nearly one in six accounts are earning relatively low rates of interest given the competitive rate environment of the past 12 months.

“The mantra of shop around for the best deal still applies in a higher rate environment, perhaps even more so given the premium some providers are offering on rates.”

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Mr Sprawling added: “We can also see the market is functioning. The doubling of new accounts opened compared to the 12 months before and the surge in balances deposited shows that many savers have responded to the more competitive rate environment.”

In total, 11.3 million new instant access and fixed-rate accounts were opened and funded in the 12 months to the end of August 2023, with £281.3billion invested overall.

This is more than three times the amount deposited in new accounts for the same period the year before when £83.3billion was placed in 3.6 million new fixed and instant access accounts. Of those accounts, 78 percent of accounts were earning 1.5 percent interest or below.

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Fixed savings accounts are currently paying interest rates as high as 6.05 percent, meanwhile, easy access savers can benefit from rates up to 5.25 percent.

Regular savings accounts, which generally encourage savers to deposit funds into the account monthly to receive a defined interest rate, are currently paying interest rates up to eight percent.

For the rundown of the savings accounts offering the highest interest rates this week – from easy access accounts to Cash ISAs, click here.

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