With savings rates falling, billions of pounds are sitting in low-interest accounts

As modest interest rates are earned on billions of pounds, savers are being urged to take action

It occurs at a time when variable savings account interest rates have dropped to their lowest points since 2023.

There are billions of pounds sitting in savings accounts with interest rates that are significantly lower than inflation.

The majority (96 percent) of the more than 54 billion in cash ISAs that pay interest rates of 2 percent or less are held in instant access options, according to recent research by Paragon Bank.

Of these savings, about 52.4 billion are in easy access accounts, and 1.7 billion are in fixed-rate ISAs, which pay no more than 2 percent.

According to Derek Sprawling, managing director of savings at Paragon Bank, savers can "easily" move from an instant access cash ISA with low interest rates to one with higher interest rates in order to make their money "work harder." "These accounts have over 7,000 on average, and that money could be generating much better returns by switching," he continued.

The best fixed-rate ISA, the Castle Trust Bank Fixed Rate e-Cash ISA, offers an interest rate of 4.49 percent over a one-year fixed term, while the best cash ISA, the Easy Access Chip Cash ISA, currently pays 5.03 percent.

"Many savers overestimate the effort involved in switching a cash ISA," Sprawling said, acknowledging that savers are shielding their money from taxes by keeping it in an ISA wrapper. I would advise anyone who receives less than 2% to think about their options.

The BFIA's "how to transfer an ISA" guide goes into greater detail about the procedure for transferring ISA funds.

Because of inflation, these savers are losing out on income growth as well as seeing their purchasing power decline.

In the UK, the rate of inflation is currently 3.0%. In the UK, inflation has been high recently; in October 2022, it reached a 41-year high of 11.1 percent. Since April 2021, the Consumer Prices Index (CPI) has only dropped below 2 percent once, to 1 point 7 percent in the year ending in September 2024.

In real terms, your savings lose value when interest rates are lower than inflation because prices are rising more quickly than money.

Are variable savings account interest rates dropping?

New data from Moneyfacts shows that variable savings rates have now fallen to their lowest point since August 2023.

The average easy access ISA is only slightly better at 3.02 percent, while the average easy access rate is only 2.84 percent.

Even though it has decreased, the average notice ISA rate of 3.79 percent is still higher than that of other easy-access options.

Moneyfacts' finance expert Rachel Springall stated: "Many savers still rely on easy access accounts because of their flexibility, but the reductions might persuade some to look at a fixed rate arrangement for a guaranteed return in the upcoming years.

At 4 points 15 percent, the average rate for one-year fixed bonds has also dropped to its lowest level since May 2023. Four points was the average one-year fixed ISA rate.

According to Springall, the "margins of falls are not as aggressive as seen in previous months," even though fixed rate bond rates are also falling.

Before the 2024 - 2025 tax year ends, "savers must act to take advantage of all the different accounts that are available to them, maximize their interest income, and utilize any tax-free allowances," Springall continued.

Also, the total number of products has decreased month after month to 2,146 savings offers (including ISAs).