Savvy consumers shunning savings accounts to make their money work harder
Current accounts pay up to 5% compared to the best ISA, which offers just 1.5% – this could mean the difference of almost £111 on a full ISA allowance of £15,000
Almost a third (31%) of people use their current account to save, and a further 35% would consider doing so
Young people (24%) and Londoners (28%) are the most likely to use their current account – shunning traditional savings accounts and ISAs
Just a quarter (25%) know the rate of interest on their current account – men (32%) are almost twice as likely as women (18%) to know
More than half (51%) are seeing their money languishing on rates of less than 1% – just one in ten (10%) are enjoying the best rates of more than 3%.
With the ISA deadline fast approaching, new research from price comparison and switching service Uswitch.com reveals that three in ten savvy consumers (31%) are using their current accounts to make their money work harder.
While one in ten (12%) are using their current account as a one-pot wonder for all their finances, a fifth (19%) say they have specifically chosen to save in the main current account in order to boost their interest rates. A further third (35%) would consider doing so.
It’s not surprising that people are shunning traditional savings accounts, when the best Easy Access ISA offers a meagre 1.5% interest, compared to the top paying current account which offers 5%. This difference could mean over £100 extra on a savers pot of £15,000 – the full ISA allowance.
Last weeks’ budget announcement to scrap tax on basic rate taxpayer’s first £1,000 from April 2016 – and everyone else’s first £500 of savings – makes current accounts even more attractive, especially to savers with smaller pots.
Worryingly though, just a quarter of people (24%) know the rate on their current account – with women almost half as likely to know (18%) as men (32%). In fact, more than half (51%) are seeing their money languishing in accounts offering less than 1%. Just one in ten (10%) are making the most of the market and enjoying rates of more than 3%.
Interest based on savings of £2,000 (2015/2016 tax year – current rules)
| Savings account | AER | Gross interest | Interest earned by a basic 20p rate taxpayer | Interest earned by a 40p rate taxpayer | Interest earned by a 45p rate taxpayer | ||
|---|---|---|---|---|---|---|---|
| Post Office Easy Access ISA with 1.5% AER | 1.5% | £30 | £30 | £30 | £30 | ||
| *** | 5% (up to £2,500, 0% on everything above £2,500) | £100 | £80 | £60 | £55 | ||
| **** | 2% (minimum £2,000) | £40 | £8 | £0 | -£2 | ||
| 5% (up to £2,000, 0% on everything above £2,000) | £100 | £80 | £60 | £55 | |||
| Source: Uswitch.com |
Interest based on savings of £15,000 (2015/2016 tax year – current rules)
| Savings account | AER | Gross interest | Interest earned by a basic 20p rate taxpayer | Interest earned by a 40p rate taxpayer | Interest earned by a 45p rate taxpayer | ||
|---|---|---|---|---|---|---|---|
| Post Office Easy Access ISA with 1.5% AER | 1.5% | £225 | £225 | £225 | £225 | ||
| *** | 5% (up to £2,500, 0% on everything above £2,500) | £125 | £100 | £75 | £68.50 | ||
| **** | 3% (above £3,000, up to £20,000) | £450 | £336 | £246 | £223.50 | ||
| 5% (up to £2,000, 0% on everything above £2,000) | £100 | £80 | £60 | £55 |
Source: Uswitch.com
Interest based on savings of £2,000 (2016/2017 tax year – new rules)
| Savings account | AER | Gross interest | Interest earned by a basic 20p rate taxpayer* | Interest earned by a 40p rate taxpayer** | Interest earned by a 45p rate taxpayer | ||
|---|---|---|---|---|---|---|---|
| Post Office Easy Access ISA with 1.5% AER | 1.5% | £30 | £30 | £30 | £30 | ||
| *** | 5% (up to £2,500, 0% on everything above £2,500) | £100 | £100 | £100 | £100 | ||
| **** | 2% (minimum £2,000) | £40 | £16 | £16 | £16 | ||
| 5% (up to £2,000, 0% on everything above £2,000) | £100 | £100 | £100 | £100 | |||
| Source: Uswitch.com |
Interest based on savings of £15,000 (2016/2017 tax year – new rules)
| Savings account | AER | Gross interest | Interest earned by a basic 20p rate taxpayer* | Interest earned by a 40p rate taxpayer** | Interest earned by a 45p rate taxpayer | ||
|---|---|---|---|---|---|---|---|
| Post Office Easy Access ISA with 1.5% AER | 1.5% | £225 | £225 | £225 | £225 | ||
| *** | 5% (up to £2,500, 0% on everything above £2,500) | £125 | £125 | £125 | £125 | ||
| **** | 3% (above £3,000, up to £20,000) | £450 | £426 | £426 | £426 | ||
| 5% (up to £2,000, 0% on everything above £2,000) | £100 | £100 | £100 | £100 |
Source: Uswitch.com
*First £1,000 of interest earned tax free as per Budget announcement
**First £500 of interest earned tax free as per Budget announcement
*** First 12 months only
****Interest earned includes deduction of £24 annual fee
David Mann, Head of Money at Uswitch.com says; “Savers are having to make do with the lowest returns in years – but many are not making the most of the few places that they can make their money work harder. With the deadline approaching, and following the huge boost last year to the amount you can save tax-free, many hard-working Brits will be checking out the best ISA’s.
“A cash ISA could be an attractive option. The changes have been positive for savers, allowing you to put more of your money in, and making them as easy to open and manage as possible. But savers only considering these may be missing a trick.
“The once humble current account could be a one pot wonder for many – even after the treasury has taken a chunk of your cash. While the best ISA on the market offers a meagre 1.5%, those saving in a current account could not only enjoy greater and easier fee-free access to their cash, but they could see their savings grow at much faster – enjoying rates of up to 5%.
“The recently revealed plans to scrap tax on the first £1,000 of interest earned on savings for basic rate taxpayers – and £500 for everyone else – will be a welcome respite to savers. This could make current accounts an even more attractive option, especially for those looking to boost their earnings. Doing the maths may make people question the benefit of a tax free investment option, especially as some current accounts also offer a switching incentive.
“Additionally, there are peer to peer savings schemes which can offer higher rates of interest – people should be aware though, that with these, a higher rate of interest comes with a higher risk, as savings are unprotected by the government’s insurance. What is important is that savers consider all the options, and seek advice if they’re still unsure – by doing this, they could make the most of their hard-earned cash.”
For more information visit www.uswitch.com or call 0800 093 06 07
FOR MORE INFORMATION
Katherine Moss
Phone: 020 3021 5893
Email: katherine.moss@uswitch.com
Twitter: @uswitchPR
Notes to editors
All research referred to was conducted by Opinium with an online survey of 6,500 UK respondents between 9th – 16th March 2015. Percentages and figures not used in grossed up calculations refer to the proportion of the whole sample unless otherwise stated.
TSB Classic Plus Account
Post Office Easy Access ISA
Based on calculations as per tables
When asked “In response to low interest rates on savings products, some current account providers have launched current account deals that pay a competitive rate of interest. With this in mind have you started to use, or would you consider using your current account as your main savings account?” 19% said ‘I have already started saving into my current account instead of my savings account’; 12% said ‘I do not have a savings account and keep everything in my current account’; 35% said ‘I do not use my current account for savings but would consider doing so’ – 24% of those aged 18-34 and 28% of those who live in London said this.
When asked “Do you know the rate of interest on your MAIN current account?” 25% said ‘I know the exact rate’ – 32% of men said this and 18% of women.
Of those that know the rate, when asked “What is the interest rate on your current account?” 28% said ‘zero’; 23% said ‘less than 1%’; 17% said ‘1-2%’; 18% said ‘2-3%’; 8% said ‘3-5%’; 2% said ‘5% or more'.
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