Why changing your savings account can earn you 322% more interest

Ok, let’s be honest about our savings - do you know how much interest you are currently earning?

Is your money sitting in a savings account that you haven’t changed for a few years? Or did you move your savings into a one-year fixed-rate bond last year and now it’s ready to be accessed?

If this sounds familiar, then we have some good news - you can now earn a lot more money in interest. 

But before we break down exactly how much more money you could get in your savings account, let’s rewind to last year. 

In April 2022, the Bank of England’s base rate was 0.75%, with an average interest rate for savings accounts at 2.72% and average instant access rates at 1.35%. 

Fast forward to last week, and the Bank of England upped the base rate to 4.5% and the average interest rate for a savings account was 3.31%, with the average for an instant access at 2.42%. 

This clearly shows that rates have increased (although maybe not as high as we would like to see - we discussed this in detail a few weeks ago), so there is no reason to leave your hard earned money in a low-interest savings account. 

Plus, if you do your research, you can easily beat the average interest rates and find accounts offering rates that are considerably higher than last year. 

Chip is currently offering an instant access account at 3.71% and you can withdraw and add money whenever you wish. This means it's a flexible way to earn some interest on your savings without having to commit to locking it away for a period of time. 

GB Bank via Raisin also has an easy access account at 3.70%, with no limit to withdrawals, but you are unable to withdraw less than £500 in a single transaction and the balance must not be below £1,000. 

Alternatively, if you would prefer a cash ISA, Paragon Triple Access ISA is an easy access account with tax-free benefits and an interest rate of 3.51%. 

These rates sound a lot more positive than last year, but what is the impact of moving from a savings account offering a mere 1% interest to one that’s nearly at 4%? 

To illustrate the difference, let’s look at one-year fixed-rate bonds. 

In May 2022, the average interest rate for a fixed-rate bond was 1.32%, 12 months later the average interest rate was 4.2%. 

Now, according to the FCA, up to a third (34%) of UK adults had either no savings, or less than £1,000 in a savings account, so for the purpose of this example let’s consider how much interest you can earn on £1,000.

If you saved £1,000 in a one-year fixed-rate bond with 1.32% interest then you would have earned £13.20 from May 2022 to May 2023. If you then move that £1,013.20 into a new one-year fixed-rate bond with 4.2% interest, by this time next year you’ll earn £42.55. That’s an astonishing 322% more than last year. 

So, take this opportunity to review your savings, explore the best savings accounts available and move your money if it is currently sitting in an account earning little to no interest. 

Alternatively, if you are at the start of your savings’ journey, you’ll find great interest rates on instant access accounts and this will act as a reward for your new saving habits.