Around £250bn is currently sat in UK cash accounts that are paying no interest, according to latest Bank of England (BoE) data.

The latest reports, which were published on 6 July, show that although central bank interest rates have risen by almost 5% in the last 18 months, there is a lot of money in cash accounts that is receiving no interest.

This monetary figure swelled during the financial crisis in September 2022, when interest rates were cut to an ‘emergency rate’ of 0.5%, and has increased even further on the back of stimulus from the BoE.

The reports have also shown that there is £945bn currently sitting in instant access savings accounts, which is paying, on average, around 1.3% interest.

The FCA has begun to question bank bosses on interest rates on their savings accounts, which are considerably lower than those offered on their mortgage products.

However, figures in the industry have called on savers to take matters into their own hands and shop around for alternative products.

Head of investment analysis at AJ Bell, Laith Khalaf, said: “It seems the money in these accounts is liable to rise like a rocket and fall like a feather though. Although interest rates have risen by almost 5% in the last year and a half, the amount of money stuck in accounts paying no interest has remained stubbornly high. It peaked at £273bn in September last year, and has since fallen back to £250bn, as at 31 May 2023. It’s heading in the right direction, but very, very slowly.

“Interest rates are now back where they were in 2008, when the amount sitting in accounts paying no interest was just £47bn. Even allowing for some growth in the stock of household savings, it’s astonishing that there is today five times more in non-interest bearing accounts than there was in 2008, when interest rates were at the same level. For some perspective, the amount of money held in interest-bearing instant access accounts has doubled since 2008.

“There is currently £945bn sitting in these interest-bearing instant access accounts, paying on average 1.3% in interest, again according to the latest BoE data, as at 31 May. Fortunately, some of these accounts are highly competitive, though less fortuitously that implies there is a large rump of extremely poor rates which are dragging the average down. Little wonder then, that bank bosses have been hauled in before the FCA to explain themselves.

“Savers shouldn’t wait for the banks to start paying decent rates on their accounts though. By voting with their feet, savers can obtain significantly better rates and put some much-needed competitive pressure on banks to boot. By shopping around for the best rate, and considering locking into fixed term accounts, many savers will be able to significantly improve their lot.

“It’s undoubtedly a pain in the neck to move bank accounts, but if you’re getting nothing, or next to nothing, from your cash account, the rewards of doing so are high right now. According to Moneyfacts, the best instant access account is paying 4.35%, and the best one-year bond is paying 6.1%.

“For those who don’t want the faff of moving between banks every time a new provider pops up with a better rate, there are now cash hubs available which combine a range of competitive savings providers, where switches can be made within the same account with one online login. It's also worth keeping the bare minimum in your current account, as these tend to have less generous rates, and transferring out as much as you can into a savings account offering higher returns. Alternatively, those who choose to wait for the banks to pass on interest rate rises across all their accounts better settle in for the long haul.”

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