We are famously a nation of savers, stuffing £12bn into Cash ISAs in April alone. But despite diligently saving, fewer than half of us can correctly answer the question – ‘what rate of interest are you earning on all your savings?’
And this seemingly small oversight could be costing more than you think.
Right now, savers can still take advantage of decent inflation-beating interest rates. But there’s a big difference between the best and worst paying accounts on the market.
So you cannot assume that your cash is being looked after. And we’re seeing more and more accounts offering big bonus elements for both easy access savings accounts and Cash ISAs. We’re looking at why it’s important to read beyond the headline rate and check the small print.
This article isn’t personal advice. ISA and tax rules can change, and benefits depend on your circumstances. If you’re not sure if an action is right for you, ask for advice.
Why does it matter?
Between today’s interest rates and next year’s changes to the Cash ISA allowance and potentially taxing cash held in Stocks & Shares ISA, there’s never been a better time to review where your money is sitting. It can take just a few minutes and could add hundreds – maybe more – to your savings pot.
What rate your savings are earning matters because of inflation.
If your savings are not, at the very least, growing at the same rate as inflation, then the value of your money is shrinking, ultimately buying you less. We’ve all felt this – £100 today simply doesn’t stretch as far as it did a couple of years ago, let alone five or 10 years ago. In fact, to buy the same basket of goods that cost £100 in 2016, today you’d need just over £140.
Inflation in May was 2.8%, so if you’re one of millions of savers with your cash earning less than 1%, your purchasing power is going backwards, not forwards. What’s the scale of lazy savings? Nearly £70bn of UK savers money is currently sat in accounts paying less than 1%.
Related article: Why Your Savings Aren't Keeping Up with Inflation in 2026
Is bank loyalty draining your wallet?
Not all savings accounts are created equal. Our review of the market on 19 June shows that the lowest-paying easy-access accounts offer just 0.75% AER interest. Hold £1,000 in one of these accounts, after one year, and you’ll have a total of £1,007.53. Extend that to five years and your balance would only grow to £1,038.20, a return of less than £40 in five years.
A savvy saver who takes just a few minutes to shop around before rehoming their cash could lock in the top easy-access rate of 4.24% AER, meaning that same £1,000 would grow to £1,043.23 after a year and to £1,235.69 after five. That’s nearly £200 difference. This is the price of inertia – and bank loyalty.
The bigger the cash pot, the more it’s costing to have your savings sitting idle. For a larger cash sum, say £15,000, a simple switch can make a huge difference to your savings pot balance. Over five years at 0.75% AER, you would have £15,573 but put it to work at 4.24% AER and it climbs to £18,535.29.
For simplicity with these calculations, we’re assuming that the interest rate remains flat for the five years. But in reality, most easy-access or current account interest rates are ‘variable’, meaning the rate can change from time to time – again why it’s so important to keep reviewing what you’re getting.
It’s also worth highlighting that savings product rates are regularly added and withdrawn from the market.
How to switch and start earning
The big banks are banking on your not bothering to switch. And their odds are good – more than one in four people admit to never switching for a better interest rate, and nearly one in three haven’t switched in the last one-to-five years.
This is one of those rare instances where loyalty doesn’t pay. Despite this, more than one in three say they aren’t considering switching as they trust their current provider.
The good news is that finding a better rate has never been easier. Start by reviewing all your savings accounts, especially if you have different pots for different goals. What was competitive 12 months ago may not be today.
Comparison websites and savings platforms like Active Savings are a great place to start. A simple switch could put you in a stronger financial position today – and for the long run.
If it’s a Cash ISA, follow the transfer process by placing an instruction with your chosen new provider, and then the two companies will manage the movement for you. Moving the money yourself could result in your losing the valuable tax-free ISA status.
For a regular savings account, you’ll need to withdraw the money from your existing savings account to your current account, then upload it into the new account. Savings platforms can reduce the steps in this process, letting you move money around between different providers through one account.
Get access to market leading rates from multiples banks and lenders through one online account via HL’s Active Savings.
Bonus or bait?
When shopping around, it’s becoming increasingly important to look beyond the headline interest rate.
Around half of the top-paying easy access savings accounts and Cash ISAs feature a bonus rate, but the small print often contains conditions, which could mean you end up with less than you expect.
So, what quirks can you find in the fine print? Everything from a time-limited offer to minimum cash balance requirements, as well as restrictions on the number of withdrawals you can make – exceed the number and the bonus rate drops. One of the most unusual is having to complete a qualifying mortgage to benefit from the top-up bonus rate.
If you meet these conditions and will benefit from the enhanced rate, that’s great. But it’s why reading the terms and conditions is important.
Don’t take a set-it-and-forget-it approach. It pays to be proactive. If you select an account that gives you a bonus for 6 months before it drops away, then make sure to set yourself a reminder to switch and keep your money working.
Protect your interest
With today’s higher interest rates, people may find that they start rising above the personal savings allowance – the amount of interest you can earn tax free outside of ISAs and pensions – and as a result, get handed an unwanted tax bill. A basic rate taxpayer would creep over the £1,000 threshold with just over £23,000 of savings, earning the top rate of 4.24% AER, and a higher rate taxpayer needs only £11,500 to fall into tax territory.
Income tax rates on savings interest are rising from April 2027, set to climb beyond standard income tax rates by two percentage points, so basic rate taxpayers will pay 22% on anything beyond their personal savings allowance and higher rate taxpayers 42%.
Top-rate taxpayers get no personal savings allowance so will face a 47% tax on every pound of interest earned outside of ISAs and pensions – keeping just 53p in every pound.
This and the proposed tax on cash held in a Stocks and Shares ISA makes Cash ISAs even more valuable. Any savings in a Cash ISA are sheltered from tax today and in the future. And the other big change coming in April 2027 is that for under 65s the Cash ISA allowance will drop to £12,000. They will still have a total ISA allowance of £20,000, but only £12,000 of that will be able to go into a Cash ISA. With deadlines approaching, it’s time to act.
Stay a step ahead
ISA allowances and tax thresholds are just a few of the ways that your finances are changing at the end of this tax year. Editor’s Choice is our weekly newsletter giving you news, tips and insights on these changes right to your inbox.
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The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown (company number 2122142).