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Are you in the current account savings trap? Here’s how to get out of it

We take a closer look at what the current account savings trap is and how to get out of it.

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.

You might have heard of the tax trap before, but have you heard of the savings current account trap?

If not, you’re not alone. But you could’ve fallen into it unknowingly.

Around one in five UK adults we surveyed* don’t realise the value of their savings is at even more risk of being whittled down by inflation by keeping them in a current account.

We look at what the savings current account trap is, and more importantly, how to escape it.

Although this article can give you helpful tips, it’s not advice. If you’re not sure if something is right for you, ask for financial advice.

*Results from a survey of 2,000 people by Opinium for HL in September 2021.

What is the savings current account trap?

Most would baulk at the idea of keeping money under the mattress, but there’s not currently much difference when it comes to keeping savings tucked away in a current account.

While it offers quick and instant access to your savings, it’s not doing much to help make the most of savers’ money.

In fact, it’s doing the opposite.

With inflation expected to hit 5% next year, there’s a real risk that savers will be suffering in the not-so-distant future.

A possible financial silver lining emerging from the pandemic is, on average, people have been saving higher amounts than ever before.

But it’s estimated that £250bn of savings aren’t earning much interest, and just asking for inflation to start eating away at it.

Read more about the inflation risk to your cash savings

What about the all-too-often quick dip?

Savers could be more likely to dip into their savings when it’s in their current account. Almost one in five people* spend their savings when it’s not in a separate account.

We usually suggest keeping three to six months of essential spending in a savings account that’s easy to access if you’re earning an income. If you’re not working, we think you should hold more like one to three years’ worth. We call this an emergency cash buffer.

If you’re dipping into it too often and something unexpected happens, it could be harder to build back up, and you might see your savings fall faster than you think. You could also then run the risk of eating into your overdraft to cover extra unexpected costs.

The rise (and fall) of interest rates

With inflation dominating the savings and investment spotlight, the rate of interest available in most current accounts wouldn’t even scratch the savings surface for better returns.

Even if interest rates do rise, it’s very unlikely they’ll be rising enough to beat inflation in the short to medium term. That’s why it’s important to make your money work harder for you.

A better way to save?

Savvy savers are getting better returns by having a savings portfolio.

By keeping savings you don’t need for a number of months or years in a current account or easy access savings account, you’re running the risk of losing value on your money in real terms.

You could buffer this by saving into a mixture of fixed-term products where you could earn more interest in the long run. But you won’t be able to access your money until the term ends.

By mixing and matching across different terms, rates and banks and building societies, you can take charge of your savings and build them around your savings goals.

A savings portfolio can help boost returns by giving savers the flexibility to get the best rates and terms for their savings goals.

SEE WHAT A SAVINGS PORTFOLIO COULD LOOK LIKE

Build a savings portfolio with Active Savings

You can manage everything online through your HL account – you get to see all your savings and investments together. You also don’t have to shop around for competitive savings rates from a range of different banks and building societies.

Once you’ve opened your Active Savings account, or logged in, you can look for the right mix of rates and terms that fit your goals and needs.

Whether they’re short or medium term is up to you, you’ve got the flexibility to pick and mix providers, rates, and terms. You won’t always get that with big high street banks.

Cashback

Get £10-£100 cashback.

Open an Active Savings account by 9 December, then add at least £10,000 by debit card and choose your savings product(s) within 60 days to qualify for cashback. If your balance drops below your cash offer qualifying amount within 6 months, we may reclaim your cashback. Terms apply see below.

You save Your cashback
£10,000 - £19,999 £10
£20,000 - £29,999 £20
£30,000 - £49,999 £30
£50,000 - £79,999 £50
£80,000 or more £100

MORE ON BUILDING A SAVINGS PORTFOLIO

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.

Active Savings cash back offer terms – what you need to know

  1. This offer is available to anyone who opens a new Active Savings account between 11 November 2021 and 9 December 2021 inclusive (“the Offer Period”).
  2. To qualify for the offer, you’ll need to fund your new account, with at least £10,000 by debit card, and to subsequently use this money to instruct us to add at least £10,000 to one or more savings products within that account. Both of these actions must be taken within 60 days of the opening of the account to qualify (“the Qualifying Period”). For the avoidance of doubt you can open an account with as little as £1 and still qualify for the offer, provided that your account is topped up to a balance of at least £10,000 and you use this money to instruct us to add at least £10,000 to one or more savings products. Both of these actions must be taken within 60 days of opening the account in order to qualify.
  3. If you open an account within the Offer Period and also satisfy the criteria listed in clause 2, we will credit the cash hub in your account with a cash amount between £10 and £100, depending on the amount you add to one or more savings products. We will credit the cash amount within one month after your Qualifying Period. We’ll notify you by email once the cash amount has been added.
  4. The value of the cash reward will be based on the total amount added to savings products within 60 days of the opening of the account. The value of the cash reward will also only be based on the amount added to your account by debit card during the Qualifying Period. The value of the cash reward will not be based upon any amounts added to savings products using cash held in a Fund and Share Account.
  5. The cash reward shall be determined in accordance with the tiers identified in the table accompanying these terms and conditions.
  6. It is not possible to combine the value of saving products chosen in accounts with different client numbers for the purpose of this offer. The maximum amount of cash you can receive under this offer is £100.
  7. We reserve the right to reclaim the cash reward if the overall balance of your Active Savings Account drops below your cash offer qualifying amount within 6 months of the date of the qualifying deposit. We will notify you if we intend to reclaim the cash reward, and will claim it within 7 working days.
  8. We reserve the right to amend, extend or withdraw this offer if necessary, including for legal or regulatory reasons or otherwise. If the offer closes early, all qualifying applications received up until this time will still be accepted. Details of any such amendment, extension or withdrawal will be posted on our website at www.hl.co.uk/savings.
  9. This offer is not available to anyone who already has an Active Savings account.
  10. You must not be an employee of any Hargreaves Lansdown Group company or a member of any such employee’s immediate family or household.
  11. This offer is limited to one payment of up to £100 per client.
  12. This offer will be governed by English law and, in participating, you submit to the jurisdiction of the English courts.
  13. References in these terms and conditions to “Hargreaves Lansdown”, “our”, “us” or “we” are to Hargreaves Lansdown Savings Limited (company number 08355960), authorised and regulated by the Financial Conduct Authority (FCA Register number 915119) under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Registered office is at 1 College Square South, Anchor Road, Bristol, BS1 5HL. References to the “Hargreaves Lansdown Group” are to Hargreaves Lansdown plc (company number 02122142) and its subsidiaries from time to time.


The best rates on Active Savings

Easy access

Up to
0.50% | 0.50%
(AER | Gross)

Avg. market rate
0.11%

1 year

Up to
1.25% | 1.25%
(AER | Gross)

Avg. market rate
0.30%

2 years

Up to
1.55% | 1.55%
(AER | Gross)

Avg. market rate
0.50%

3 years

Up to
1.65% | 1.65%
(AER | Gross)

Avg. market rate
0.82%

Easy access

Up to
0.50% | 0.50%
(AER | Gross)

Avg. market rate
0.11%

1 year

Up to
1.25% | 1.25%
(AER | Gross)

Avg. market rate
0.30%

3 years

Up to
1.65% | 1.65%
(AER | Gross)

Avg. market rate
0.82%

Find out more

Please note the products above are some of our most popular, but more are available. Click the link above to see our full range. Products can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Easy access products pay a variable rate and fixed term products pay a fixed rate.

Source: Bank of England 31 December 2021. Comparisons with average market rates for easy access products are based on instant access products, which allow immediate withdrawals. Active Savings offers easy access products and withdrawals usually take one working day.

AER (Annual Equivalent Rate) shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products. Once you have opened a fixed term product the rate won't change, but rates on easy access products can vary.

Gross means the rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

The savings of private individuals held with authorised banks and building societies are covered under FSCS. All of our partner banks are authorised by the Prudential Regulation Authority (PRA) and covered under FSCS.

What did you think of this article?

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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