Recent analysis of UK banking data found that £325 billion is currently sitting in UK current accounts earning no interest at all, a vast pool of money quietly losing value every day as inflation erodes its purchasing power.
87% of the country’s 86 million current accounts pay no interest. Even more striking is that 6.5 million of these accounts hold balances of £10,000 or more, and around 340,000 contain over £100,000 while earning nothing.
If that money were simply moved into one of today’s best easy-access savings accounts paying around 4.5%, it could generate roughly £14.6 billion of interest every year for savers. A person holding just £10,000 in a non-interest-paying current account could earn around £450 per year gross just by moving it into a competitive savings account.
So why does so much money remain parked in accounts paying nothing?
Research suggests that apathy and anxiety are two of the biggest reasons. Many people simply leave their savings where they have always been, often with the same bank as their current account. In fact, surveys show that over a third of savers keep their money with the same provider, while one in five keep their savings directly in their current account. Past research suggested that people were twice as likely to get divorced as change banking provider – but that was 20 years ago.
Fortunately, switching banks has now become much easier. Unfortunately, divorce statistics have got worse!
Another factor is uncertainty about investing. According to research from the Financial Conduct Authority, 61% of people with at least £10,000 in investable assets hold three quarters or more of their wealth in cash, rather than investments.
While holding some cash for emergencies is sensible, relying too heavily on cash can come at a cost over time. History shows that cash rarely keeps pace with inflation, meaning its real value gradually declines.
By contrast, long-term investment in global stock markets has historically delivered stronger growth. Over the past year alone, global equities returned more than 22%, although markets can rise and fall and past performance is not a guide to future returns. In fact, recent research by Vanguard suggested that even if you had been the unluckiest investor in the last 30 years, you still would have beaten cash by investing in the stockmarket.
Longer-term studies reinforce the point. Research looking at investment returns over more than a century shows that cash has produced negative returns after inflation over the past decade, while shares have typically delivered positive real growth over longer periods.
The key message is not that everyone should rush into the stock market. Instead, it highlights the importance of making sure each pound you hold has a clear purpose.
Emergency reserves should be accessible and secure, but longer-term savings may benefit from being invested so that they have the potential to grow faster than inflation.
A simple review of where your money sits today could make a significant difference to your long-term financial future.
If you would like to discuss whether your savings and investments are positioned effectively, we would be delighted to help.
