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A tale of two savers

A look at how inertia with your savings could be costing you dearly.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

As a nation we manage our savings by convenience. According to our recent survey nearly half of people have the majority of their savings with their existing bank. And 63% of savers are not looking to switch their savings. (HL Survey, September 2019).

That’s despite the average instant access savings account paying a paltry 0.41% including unconditional bonuses.

And of the £861.7bn savings market, 77% is held in instant access accounts. Only 23% is in fixed term savings, even though fixed term products usually provide a better rate. Although with fixed term products you can’t usually access your money until maturity.

This disparity is actually becoming bigger over time; the amount in instant access is up 3.4% year on year, while the amount in fixed term accounts has fallen by 2.1%.

Of course, it makes sense to keep some of your savings in instant access accounts, in case of emergencies. But you don’t need to keep everything there.

How much you should set aside will depend on your own circumstances, but financial planners usually suggest three to six months’ worth of expenses as an emergency fund. For anything over this it’s worth considering fixed term savings.

Below we’ll look at two types of savers and the difference this could have on a savings pot of £10,000 in just one year.

This example is provided for illustration purposes and should not be viewed as advice. Fixed term products only allow access at maturity and inflation reduces the spending power of cash.

High street Harry

Harry likes to stick with his high street bank. He may have been enticed by a teaser rate long ago but is now left in an account paying next to nothing. He might know he’s not getting the best rate, but feels uncomfortable moving his money to another provider. He feels safe in the knowledge that his money is all together and keeps all his savings in an instant access account.

Unfortunately for Harry, he can only expect £41 per year in interest on his £10,000 savings pot, based on the current average high street rate.

Active Amy

Amy likes to keep her money working as hard as she does. She prefers to blend easy access with fixed term savings to boost her overall rate. She uses Active Savings because she likes the range of products available, can access some of the best savings rates in the market, and because it’s easy to manage savings with multiple providers through one online account.

Amy splits her savings across a few products of different lengths, so she continues to have easy access to some of it when she needs it:

  • £4,000 in easy access earning 1.20% (AER/Gross*)
  • £3,000 in a 1 year fix earning 1.80% (AER/Gross*)
  • £3,000 in a 2 year fix earning 1.80% (AER/Gross*)

In total Amy is earning £156 interest on the same £10,000 savings pot - £115 more for the first year than Harry. This is based on savings products currently available through Active Savings and on the assumption that both Harry and Amy do not make any additional contributions or withdrawals.

Interest earned

Source: Products available through Active Savings on 8 January 2020 and author’s calculations

How much better off could you be?

Active Savings makes it easy to manage your savings whilst ensuring you earn a great rate of interest. You can pick and mix easy access and fixed term savings from a range of banking partners. And it’s all managed through the convenience of one online account, with one login. There’s great rates to choose from, up to 1.90% (AER/Gross*).

Try our calculator to see how much better off you could be

With Active Savings, we’ll help you stay on top of your cash by telling you when a fixed term product is about to end. Choosing a new savings product is easy and only takes a few clicks.

So why not improve the way you save forever? Active Savings could be the only savings account you ever need, and you can get started from as little as just £1.

Discover more

*AER (Annual Equivalent Rate) shows what the interest rate would be if interest was paid and compounded once each year. It helps you compare the interest rates on different savings products.

Gross means the interest rate without any tax deducted. Interest is paid gross. You are responsible for paying any tax due on interest that exceeds your Personal Savings Allowance to HM Revenue & Customs.

Expected profit rate – Islamic banks offer an expected profit rate, rather than interest on their savings products, in order to comply with Sharia banking principles.

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248. The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 with firm reference 751996 for the provision of payment services. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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