Bank warning over ‘zombie’ account that could see you lose cash
MILLIONS of Brits could be missing out on thousands of pounds when storing their cash in ‘zombie’ accounts.
It means that those with a decent amount of savings could be missing out on better returns form higher interest rates, according to financial advisors.
Savings rates have been boosted by the Bank of England’s decision to raise interest rates 14 consecutive times in recent months.
Current market leaders have a savings rate of 4.63% available, which, considering most current accounts have a rate of 1% or less, represents a huge jump.
But the average current account paid savers just 0.65% back on their deposits in April, according to latest Bank of England figures.
The average bank customer holds £17,365 worth of savings, according to Money.co.uk.
And if you’ve got that cash sat in an account paying 0.65% interest you’ll earn just £112.87 in interest each year.
But if you were to move it to Shawbrook’s market-leading easy access account you’d get 4.63% interest back – or £804 in interest every year.
This means you’d earn a whopping £691.13 if you moved your cash out of a zombie account paying a mere 0.65%.
Scott Gallacher, a chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton, said: “Rising interest rates have resurrected the issue of Zombie bank accounts.
“It’s alarming to see so many people stuck in neglected bank accounts earning mere pennies on their hard-earned money.”
Joshua Gerstler, a chartered financial planner at Borehamwood-based The Orchard Practice, also advised savers to be proactive amid the rising rate environment.
He said: “There’s no doubt that, after all the rate rises of the past year or so, millions of pounds in interest is being lost by savers unnecessarily.
“We still recommend holding as little money as possible in bank accounts, as over the long term it is not a good place to leave your money.”
Where can I put my savings?
Last week, the Bank of England increased base increased its base rate by 0.25 percentage.
It means a rise from 5% in June to 5.25% in August.
It is also the 14th time in a row that the BoE has raised rates since December 2021 when they were at historic lows.
The increase is bad news for borrowers as it makes the cost of mortgages and other loans more expensive.
But it’s good news for savers who can get access to better returns and you should check your existing account to make sure it’s worthwhile.
Shawbrooks’ easy access account which pays savers 4.63% and allows for unlimited withdrawals.
This means that those saving £1,000 in the account would earn £46.30 in interest after 12 months.
But savers could also get a higher rate by locking their cash away in GB Bank’s 1 Year Fixed Term Deposit which pays savers 6.05% back.
The only downside to fixed bond accounts is that you’re forced to lock away your cash for a defined period of time.
So it’s always worth weighing up to see what’s best for you.
How can I find the best savings rates?
With your current rates in mind, don’t waste time looking at individual banking sites to compare rates – it’ll take you an eternity.
Visit comparison websites such as MoneyFactsCompare, Go Compare and MoneySupermarket.
These will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
There are five main types of savings accounts, and understanding the differences can help you narrow down the options.
- Easy-access savings accounts – usually allow unlimited cash withdrawals. However, this perk means they tend to come with lower interest returns.
- Regular savings accounts – generate decent returns but only on the basis that you pay in a set amount each month.
- Notice accounts – offer slightly higher rates than easy-access accounts but you’ll need to give advance notice to your bank (up to 95 days) before you can make a withdrawal or you’ll forfeit the interest.
- Fixed-rate bonds – these offer some of the highest interest rates. However, if interest rates increase during your term you can’t move your money and switch to a better account.
- Individual savings accounts (ISAs) – these can pay high interest but come with high withdrawal fees. But, Lifetime Isas are great for anyone aged 18-39 hoping to buy a house or save for retirement.
We’ve listed all the banks and building societies that have increased savings rates after interest rates were hiked last week.
A major rule change means banks and building societies have just weeks to tell customers their savings are earning next to no interest.