Savers are being urged to take action as billions of pounds in interest are effectively going down the drain.
As much as £12 billion a year could be lost by households because around £300 billion is sitting in UK current and savings accounts earning zero interest, according to analysis by Moneyfactscompare.co.uk. That means someone with £10,000 languishing in an account paying nothing could be missing out on around £400 a year if they moved it to an account paying 4%.
For someone with £20,000, the figure rises to £800 a year, while a £50,000 nest egg could generate an extra £2,000.
Banks are cashing in
The BBC Money Box presenter and financial journalist Paul Lewis confirmed in an X post that banks are making billions from customers who leave their money in accounts that pay little or no interest.
Mr Lewis has pointed out that when banks receive money from customers, they do not simply leave it sitting idle. Instead, banks can place funds with the Bank of England in reserve accounts, where they receive interest linked to the Bank Rate.
He wrote: “Banks have £915billion of our money in savings accounts paying average 1.64% and £305bn in accounts paying 0% – average 1.23%. They can deposit that with BoE which pays Bank Rate 3.75%. Over last 12 months banks made £28.5bn profit on our money!”
The latest Moneyfacts figures show that savers do not necessarily have to lock their money away to get a better return. The average rate on easy-access savings accounts is currently 2.54%, while some deals are paying around 4% and allow savers to withdraw their cash when needed.
The warning comes amid concerns that millions of people are leaving money with their main bank simply because it is convenient. The biggest banks pay an average of just 1.16% on their flexible easy-access savings accounts, according to Moneyfacts.
That would generate just £116 in interest on £10,000 – compared with £400 at 4%. So even a saver who is earning something from their big-bank account could be missing out on £284 a year for every £10,000 by failing to switch.
Moneyfacts says around 45% of savings accounts fail to pay more than the Bank of England’s 3.75% base rate. The average rate available across new savings products has climbed to 3.67%, its highest level since February 2025, when it was 3.69%.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Billions of pounds are being lost in savings interest, making it essential for consumers to take a step back and see how they can make their money work harder. Amid a cost of living crisis, every pound counts.”
She urged savers to avoid the temptation to leave spare cash sitting in a current account simply because it is easy.
Ms Springall said: “Busy lives and complacency set in, making it a little too easy to just leave cash sitting in a current account that pays no interest.”
She added that easy-access accounts were a popular choice because of their flexibility but warned that sticking with a main bank could be costly.
“The most flexible accounts from the big banks pay an average rate of just 1.16 per cent,” she said.
“Ideally, savers need to aim for a return of 4 per cent on a fully flexible easy-access account that allows unlimited withdrawals to move cash to and from a current account as and when it’s needed.”
Savings rates have risen
The difference between today’s savings market and the ultra-low interest rate era is stark. In September 2021, the average easy-access savings rate was just 0.17%. It now stands at 2.54%.
The average one-year fixed-rate bond pays 4.39%, while the average five-year fixed bond pays 4.49%. Cash ISAs are also offering competitive rates, with the average easy-access Isa paying 2.76% and the average one-year fixed Isa paying 4.35%.
Tax sting for savers
There is another issue for households trying to squeeze more from their savings. The Personal Savings Allowance has remained unchanged since it was introduced, meaning more people can find themselves paying tax on their interest as frozen income tax thresholds pull them into higher tax bands.
Basic-rate taxpayers can earn up to £1,000 in savings interest before tax is due. For higher-rate taxpayers, the allowance is just £500.
This makes tax-free Cash ISAs particularly valuable for people who are likely to breach their Personal Savings Allowance. Ms Springall said: “Cash ISAs will continue to be a huge help for savers trying to shield their hard-earned cash from tax.”
She added that upcoming changes to savings rules in 2027 would make the situation more complicated. For households with substantial sums sitting in cash, the potential difference can be significant.
A £100,000 balance earning nothing could produce £4,000 a year at 4%, before tax. Even moving from a big-bank account paying the 1.16% average to 4% would increase the gross annual return on £100,000 from £1,160 to £4,000 – a difference of £2,840.
