Savings Special: Are You Missing Out?

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This podcast is not personal advice. Tax rules and benefits can change and depend on your individual circumstances. If you're unsure what is right for you, please seek financial advice. Over the long term, investing typically offers higher potential returns than cash savings, but it carries greater risk.

Full podcast episode transcript

Helen

Hello and welcome to the Switch Your Money On podcast from Hargreaves Lansdown. I'm Helen Morrissey and I’m Head of Retirement Analysis

Clare

And I'm Clare Stinton, Senior Personal Finance Analyst. Hello and thank you for tuning in. We've got a great episode for you today.

Helen

That's right Clare, today we are putting the spotlight on savings, aren't we?

Clare

We are. So, we're famously referred to as a nation of savers. Yet less than half of us know what rate of interest we're earning on all our cash, according to our June 2026 survey, with Opinium. Brits overwhelmingly prefer cash to investing, but our approach can be a little “set it and forget it”. Savings do need attention too. So, it's fair to say that most of us could be a little more proactive to make sure that our savings are working hard for us in the background whilst we get on with the day-to-day life.

Helen

And that's exactly what we're going to be exploring today. So, over the next 20 minutes or so, we'll be looking at how millions of diligent savers could actually be missing out on hundreds of pounds. While increasingly, the devil is in the detail when it comes to interest rates and what upcoming changes in April could mean for your money. So, Clare, let's start with the obvious question. I'm sure it's the one that's piqued our listeners interests. You know, how are savers potentially leaving money on the table?

Clare

Well, Helen, put simply, not all savings accounts are created equal. So right now, inflation beating rates are available. The question is are savers taking advantage. There's a big gap between the best and worst paying accounts on the market. So, if your savings are sat in one of the poorer paying accounts, your money simply isn't growing as fast as it could be. And then combine that with the fact that fewer than half of us know what rate of interest we're getting on our cash, and it's easy to see how people could be missing out. With interest rates we're seeing competition being driven by challenger banks. These are newer, smaller institutions who perhaps operate mostly online, and they typically offer more competitive rates. But even if you're with a challenger bank, there's still a chance that you could be missing out on better returns. Traditional high street banks commonly offer lower rates, so the question you should be asking is, is your bank in the 1% club? So that's 1% interest or less. Top easy access paying accounts offer in the region of 4.25%, and you may be able to achieve slightly higher if you're a new client or if you meet the conditions for a product offering a bonus. So, if you've had your savings with the same high street bank for years and lots of us have, then the likelihood is that your money could be earning more and you wouldn't be alone, because according to our recent survey, 66% of people haven't switched in the last 12 months, and that includes 4 in 10 people that haven't switched in over five years or have never switched. These big banks are banking, excuse the pun, on people not bothering to switch.

Helen

So, some people may hear “challenger bank” and wonder whether their money is as safe, as it would be with some of the bigger well-known banks. So, the Financial Services Compensation Scheme applies to all UK authorized banks, building societies and credit unions. Before placing your money with a provider, you can check that they have FSCS protection via the FCA register or via the FSCS protection checker. FSCS insures your deposits up to £120,000 per institution. This has risen from £85,000. So, in really simple terms, this means that if your bank were to go bust, the FSCS would aim to get the savings up to the maximum value of £120,000 back to you within seven working days. The type of accounts we're talking about today are all typically covered, so savings accounts, cash ISAs and current accounts. But as I say, you can check with your provider if you're uncertain. So, Clare, do we know why people aren't switching?

Clare

We do. So, in recent research that we did with Opinium, so a survey of 2,000 people carried out at the beginning of June, around 700 people said they weren't planning to switch their savings accounts in the future. So, when we asked them why more than 1 in 3 so 36% said they trust their current provider, 22% think they already have the best rate available, 20% said it's too much hassle and 11% admitted, they probably should but can't be bothered. I've saved the best for last, so 2 in 10 people responded that interest rates are so low it's not worth it. And that's the really interesting one for me because as we said a little earlier, there is a big gap between interest rates available. There are inflation beating rates available and taking advantage of those can make a big difference to your bank balance. So, you question whether people just assume rates are low because their savings have been set idle for a while, they're used to getting a poor rate from their current provider. Another factor could also be that people simply haven't checked what interest rates are out there.

Helen

So, Clare, I know that you've looked at rates. Really, what difference could those rates make?

Clare

Let's look at the maths. So, our market research on the 5th of June shows that the lowest paying savings account offered just 0.75% AER interest. Hold £1,000 in one of those accounts. After one year, you'll have earned £7.53 in interest. But had you taken a few minutes to shop around to find a top easy access rate, you could have had your cash earning 4.24% AER, so that same £1,000 would grow to £1,043.23 after one year, so that is over £35 extra, just by switching accounts.

Helen

It's really quite a big difference there, isn't it, Clare? But you know, you mentioned AER which stands for annual equivalent rate and it's a really useful data point when comparing savings accounts, as it shows you what you get over a year if you put money in and left it there. So, it can help you compare on a like for like basis. And, you know, £35 for a few minutes work is not bad. I mean, it'd pay for a takeaway or a round of drinks or even a few months’ worth of a TV subscription. But what if we look over a longer time horizon? So, say five years, you know, as that interest compounds, you earn interest on previous interest, don't you? So, the longer the timeline, the greater the potential for growth.

Clare

That's right Helen. So, the bottom rate account giving you 0.75% AER interest each year. If we look at that over five years, then that £1,000 of savings would grow to £1,038.20. A top paying account where your money is earning 4.24% AER interest would have that £1,000 turn into £1,235.69, so the difference is around £200. That is the price of bank loyalty. For simplicity with these calculations, we have had to assume that the interest rate remains flat for the five-year period. But in reality, most easy access or current account interest rates are variable, and that means that the rate can change from time to time. Again, why it's so important to keep reviewing the rates that you're getting. It’s also worth highlighting that savings product rates are regularly added and withdrawn from the market as well. So again, another reason to review.

Helen

When you put it like that, bank loyalty is expensive. Of course, the more savings you have, the more costly staying put could be. And we need to remember that loyalty doesn't always pay. It's the same with insurance renewals and the likes of mobile phone upgrades as well. It really pays to compare and review. So, 22% of the people surveyed thought that they have the best rate, and a quick review will confirm if that is the case. So, reviewing your interest rate is really important. But increasingly savers do also need to look beyond that headline interest rate, don't they.

Clare

Yes. Let's talk bonus rates. So, they are becoming a lot more common. And the bonus element is being used to stand out from the crowd. And whilst they can be a benefit, they are adding more complexity to an area that has historically been valued for its simplicity, for being easy to understand. So, it does mean that people have to work a little bit harder to compare products on a like for like basis. So around half of the top ten easy access savings accounts and cash ISAs feature a bonus element. And it's really important that people look beyond the headline rate, as you said, Helen, to the small print, as is often will contain conditions which could mean that the bonus drops and you actually end up with less than you expect. So, reading the terms and conditions is essential.

Helen

So, what kind of conditions are we seeing in the small print then?

Clare

There's quite a variety of quirks. So first up, the bonus element of the rate may only apply for a certain period of time before the interest rate drops. An example would be you might open an account with an interest rate of 4.5% AER, and 2% of that is the bonus. So after six months, the bonus stops and you're earning just 2.5% AER. Now, that's not that this type of account should be avoided. It's an attractive rate for six months. Just go in with your eyes open, benefit from that higher rate and then be proactive and switch when it drops to keep your money earning. Other conditions include minimum and maximum thresholds, so to benefit from the bonus rate, you have to meet a certain deposit level. There could also be a cash cap. So, for example, the bonus will be applied on a cash balance up to £50,000. But anything over that would earn a lower rate. There can also be withdrawal restrictions, so some providers will drop the bonus rate if you make more than 2 or 3 withdrawals from the account per year, and that type of account may not be the best option if it's money that you need to access in the coming months. For instance, the pot that you've saved for moving home and buying the things to furnish your house, or if it's your rainy-day money for life's emergencies. But perhaps the most unusual condition was having to complete a qualifying mortgage to benefit from the top up bonus rate.

Helen

So that's quite a range of conditions that you outline there. So, savers who check the fine print will end up selecting something more suited to them. This also reinforces why it's just so important that people get into the habit of reviewing their savings accounts at least once a year, but really ideally every six months. As you say Clare, if you sign up to a time limited offer and you know the benefits drop considerably after six months, for instance, then it's a good idea to set yourself a calendar reminder to review and switch if it's not competitive. We have yet to touch on fixed rates yet, though, Clare. How do they differ?

Clare

Yeah, so far, we've focused on easy access savings, which usually means you can take your money out as and when you need it. And if you make a withdrawal, the cash is usually in your bank account within 24 hours, perhaps a little longer if you're placing an instruction on a weekend, but with a fixed term account, you are locking your money away for a set period of time. Typically, that might be six months, one year, two years, three years, perhaps even five years. Why might you do that? Well, to lock in an interest rate for that time period. So, you keep that rate even if the base rate changes. And that's good news if UK rates drop. But it can also mean you're locked into a product until it matures and are unable to switch if rates climb higher.

Helen

So fixed term products are only really suitable for money that you won't need. It's best to keep some cash in an easy access account should you need it for emergencies. So, there's another reason why interest rates matter beyond simply earning more interest, though. Is that right, Clare?

Clare

Yes. So, if your savings aren't at least growing at the same rate of inflation, then the value of your money is shrinking. So, in May inflation was recorded at 2.8%. Anything earning a lot less is losing its purchasing power. It will buy you less. And we've all felt this £100 today simply doesn't stretch as far as it did a couple of years ago, let alone 5 or 10 years ago. And nearly £70 billion of UK savers money is sat in accounts paying less than 1%. So, at today's inflation levels, that money is going backwards, it's not going forwards. And this really highlights the scale of money that could be working harder.

Helen

I think that's a really important point to make, isn't it? As savers may focus on whether their headline balance is growing. But what they need to be watching out for is whether their spending power is also growing. We've explained why it matters, but let's tackle the practical side. So, you know, how easy is it to switch? You know, you mentioned that 2 in 10 surveyed said that they wouldn't switch as it's too much hassle.

Clare

Yes. So, moving your money around does fall under life admin. But as life admin goes, it's pretty easy going. Plus, the outcome at the end is a boosted bank balance. So, start by checking the rate that your cash is earning. Compare this to other accounts on the market and comparison websites can be really useful here. As we said, check the terms and conditions. Once you're confident you've selected the right account for you. With current accounts and cash ISAs, there is a seamless process set up to help manage the transfer. So, with a current account, you apply for the new account and request to use the current account switch service, which will handle the balance transfer. Transfer your existing direct debits, standing orders and then it will close your old account within seven working days. Cash ISAs are similar if you want to transfer your existing cash ISA to a new provider to benefit from a better rate, then you place an instruction with your new provider, and it will be arranged and managed by the two companies. It is really, really important that people follow the official transfer process when moving ISAs, and that's to ensure that the money stays within the ISA wrapper and it keeps its tax-free status.

Helen

It works a little differently with savings accounts compared to current accounts and ISAs where there's a transfer process. I'll be honest, it is a little bit more manual for the individual, but it is still very straightforward. So once you've chosen the new account, open it, then withdraw your money from your existing savings account into your current account. Then re-deposit the cash from your current account into your new savings account to get it working harder.

Clare

Yes, although it's a little more time intensive, in reality, it still only takes a total of 20 to 30 minutes to research, review and instruct. And given it could potentially add hundreds of pounds to your bank balance, well, that's not a bad hourly rate. I have waited longer in a lunch queue.

Helen

Me too. For people who like convenience, savings platforms are also an option worth considering. They can take the hassle and admin out of moving your savings around, allowing you to compare rates from multiple banks and lenders all in one place, with everything managed to a single account with one login. If it's someone who is saving for multiple goals, you can bucket your savings into different accounts and have an overview of everything in one place. So, Clare, let's turn our attention to cash ISAs. £12 billion were paid into cash ISAs in the month of April alone. In the same month, just over £13 billion was withdrawn from regular savings accounts. Now, this suggests that people were actively moving cash to put it into a cash ISA. What's driving that?

Clare

So, people really have two main incentives - tax efficiency and changes coming down the track. So, any savings in a cash ISA are sheltered from tax today and in the future. So how much interest you can earn tax free outside of an ISA hasn't changed since the introduction of the personal savings allowance, which was back in 2016. It's £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Top rate taxpayers get no allowance. So, to be clear, this is on savings interest outside of tax efficient wrappers. That's outside of ISAs and pensions. With today's higher interest rates, people don't need to have a fortune save to start rising above the personal savings allowance. A basic rate taxpayer would creep over that thousand-pound threshold with just over £23,000 of savings earning the top rate we mentioned earlier of 4.24% AER, and for a higher rate taxpayer, they only need around £11,500 to fall into tax territory.

Helen

At those levels that could capture people saving for their house deposit outside of an ISA or retirees with an emergency fund. It's recommended that you hold 1 to 3 years’ worth of essential spending in retirement. That's a much larger cash reserve than the typical 3 to 6 months recommendation. Additional rate taxpayers face income tax on every pound of interest saved outside of ISAs and pensions. And what about the changes heading for us in April 2027? Things could get a little bit more expensive if you're holding cash in general savings accounts, isn't that right?

Clare

That is right. So, another tax is rising from April 2027 is income tax rates on savings interest. So, climbing beyond standard income tax rates by two percentage points, which means basic rate taxpayers will pay 22% on anything beyond their personal savings allowance. Higher rate taxpayers will pay 42%, and those top rate taxpayers with no personal savings allowance face a 47% tax charge on every pound of interest earned outside of ISAs and pensions, meaning they keep just 53p in every pound of interest earned.

Helen

So, this makes cash ISAs even more valuable. And the other big change, also coming in April 2027, is that if you're under the age of 65, cash ISA allowance is going to drop to £12,000 per year. You'll still have the total ISA allowance of £20,000, but only £12,000 of that will be able to go into the cash ISA. It's worth saying that tax rules can change and benefits do depend on individual circumstances.

Clare

That's right. It's a bit of a use it or lose it moment. There's now less than 12 months until that change is brought in. So, between today's interest rates and the changes coming in April, there's never been a better time to review where your savings are sitting.

Helen

Yes. So, for some that might mean switching to a better rate on their savings. And for others it could mean making the most of their cash ISA allowance to avoid an unnecessary tax bill. Either way, it pays to check what rate you're earning.

Clare

So that's all for this week. But before we go, we should remind you that this was recorded on the 25th of June 2026 and that all information was correct at the time of recording. Next week, Anna Macdonald and Matt Britzman will be back with an investment episode.

Helen

Nothing in this podcast is personal advice. If you're unsure about what's right for you and your circumstances, you should seek advice.

Clare

Over five years or more, investing typically offers better returns than cash savings, but investments go up and down in value so you could get back less than you put in. So, all that's left is for us to thank our producer, Elizabeth Hotson.

Helen

And to thank you all very much for tuning in. And we'll be back again soon. Goodbye.

Clare

Bye.