Sarah Coles, head of personal finance, Hargreaves Lansdown: “More than a quarter of savers are completely in the dark about the interest they’re getting on their savings. Given how rates have been falling, and how much further they’re expected to go, they could end up paying a horrible price for it.
Why?
Those who don’t have as much in savings tend not to know what rate they’re earning. This includes women (at 34% compared to 23% of men), renters (at 38% compared to 25% of owners), and basic rate taxpayers (at 28% compared to 19% of higher rate taxpayers). This may be because they don’t think they have enough savings to spend a huge amount of time keeping their eye on them.
However, it’s not as simple as that, because those who are aged 18-34 usually have less in savings, but are less likely to be in the dark about their savings rate than those aged 35-54. This could come down to the hassle factor. Those in mid-life have so many demands on their time that their savings have fallen off the radar.
The risks
The longer you leave money in an account, the more likely the rate is to drop, so there’s every chance that if you’re not checking your rate and switching, you could be making far less than you think on your savings.
This is particularly the case at a time of falling rates. Banks are cutting rates right now, so if you haven’t checked with your provider, or opened letters or emails from them, there’s every chance your easy access rate has dropped. When rates are falling, savers may think there’s no point in keeping on top of their savings, because they’re lower everywhere, but with the average easy access rate offering 2.77% and several still offering 4.75% or more, switching could make a serious difference – especially for those with more savings.
If you don’t know what rate you’re getting, you also have no way of comparing it to these better rates. If your savings are languishing in an easy access branch account with a high street giant, you could make significantly more elsewhere. If, for example, you have £30,000 earning 1.35% with a high street giant, you could make £408 in a year. If you moved to an account paying 4.75%, you could make £1,456 – leaving you £1,048 better off.
For those with more cash in better-paying savings accounts, by not keeping track, there’s a risk you’re in the dark about a potential tax bill. Basic rate taxpayers have a personal savings allowance of £1,000, and higher rate taxpayers have £500. However, if you make more interest than this, you’ll be liable for tax. When you’re paying this through your tax return, it will be due long after you receive the interest. There’s therefore a danger you have to pay tax much further down the line, when you’ve already spent the money. If this is a concern, it’s worth considering a cash ISA, where all your interest is tax-free.
If the idea of shopping around and then keeping an eye on multiple accounts has put you off, you could consider a cash savings platform, which tends to offer more competitive deals, lets you switch easily, and helps you keep an eye on them in one place.”
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