Savers are throwing away hundreds of pounds a year by keeping their cash in low-paying easy-access accounts with rates as small as 0.01pc.
According to the Bank of England, nearly £1 trillion of savers’ hard-earned money is now languishing in easy-access accounts paying an average rate of just 0.18pc.
By comparison, the best rate currently offered by any easy-access savings account is Virgin Money’s M Plus Saver Account, which pays 1.56pc.
Over the course of a year, someone with £50,000 saved in an account paying 0.18pc interest would earn £90 – whereas someone on the best rate would earn £785.
Rachel Springall of Moneyfacts said the average easy-access rate now stands at its highest level since 2020. “It is the challenger banks and building societies jostling for table-topping positions among easy-access savings accounts,” she said.
However nine in 10 easy-access savings accounts still fail to match the Bank Rate of 1.25pc, according to Moneyfacts. In some cases rates are as low as 0.01pc.
Ms Springall urged savers not to leave their money languishing in easy-access accounts offering low rates and to switch where possible.
“Easy-access accounts are still sought after and whilst they are convenient, it’s important consumers take time to compare deals often and not leave their cash in an account that pays a poor return,” she said.
While savers wait to feel the benefit of rate rises, some banks have passed on higher mortgage costs to customers. NatWest has increased mortgage rates by as much as 0.79 percentage points – three times the most recent Bank of England rise.
First-time buyers have been hardest hit by the higher rates, as the biggest rises apply to NatWest’s “shared equity” and Help to Buy loans. The cost of a £200,000 shared equity loan will increase from £916 a month to £992 – costing borrowers almost £1,000 extra a year.
Mortgage rates have been rising since soaring inflation caused the Bank of England to raise rates. However the rises have often oustripped the 0.25 percentage point rise to the Bank Rate announced last month. NatWest follows other high street lenders HSBC, Lloyds and Nationwide, who all increased rates on fixed-rate home loans in June.
The Bank of England reported the interest rate paid on new mortgages increased by 0.13 percentage points in May to 1.95pc. With rates on the up, borrowers are rushing to refinance debt to avoid further increases. The Bank of England also reported mortgage debt increased to £7.4bn in May 2022 from £4.2bn in April, oustripping the pre-pandemic average of £4.3bn.
Many borrowers are also chasing longer-term loans in the search for financial security. According to analyst Moneyfacts, almost two-thirds of remortgage borrowers in May chose a five-year fixed-rate loan.
The rush to lock in low rates has left lenders struggling to process new mortgage applications ahead of the next Bank Rate decision on August 4, when interest rates are expected to rise again.
Mark Dyason of Edinburgh Mortgage Advice, a broker, said some lenders were attempting to dampen demand. He said the market “cannot handle” the spike in demand.
“Turnaround times are getting longer and longer and there are a number of lenders who are currently saying it takes over two weeks to look at documents relating to applications,” he said. “We have seen at least three buy-to-let lenders withdraw entire ranges to avoid application spikes in the last week.”
A NatWest spokesman said: “We keep our rates under continual review, in line with market conditions.”