Even before the pandemic hit, interest rates were extremely low and just before lockdown they reached their lowest recorded level (0.1%). While this means it’s now a great time to borrow, the current low interest rates are bad news for savers.
We have researched interest rates and how much you are really getting for your money from keeping your cash in the average easy-access savings account. So, is keeping money in a savings account nowadays really growing your money?
The average easy-access interest rate is currently 0.23% and the average UK citizen has savings of around £6,750
This means the average person saving would need to wait 16 months to purchase a £20 takeaway using interest they earn
Saving for a car in the 2000s could be done in under 28 years – 507 years fewer than now
How long you would need to wait for items if you have an average savings amount
We analysed 236 accounts across the market and discovered the average interest rate for easy-access savings accounts is currently just 0.23%. This means it would take someone with an average savings amount of £6,570 more than 535 years to purchase a new Ford Fiesta. Applying this interest rate to the average savings amount emphasises just how difficult it is for savings account users to gain considerable returns on their money.
Saving for 6 years is needed to generate enough interest in order to purchase a new pair of £100 trainers. It would take over a decade for anything costing a few hundred pounds or more. To purchase a PlayStation 4, costing around £250, with the interest earned, 16 years of saving is required. If you planned on buying a flight to New York priced at around £599 the saving period lengthens to a phenomenal 35 years. To make enough money to even buy smaller products consumers would be required to wait over half a year e.g. 7 months to purchase a cinema ticket or 16 months to purchase a £20 takeaway.
How long you would have needed to wait for items with historical savings rates
The average interest rate in the 2000s was 4.45%, meaning that the average Brit could purchase a new Ford Fiesta in a fairly short 28 years if interest rates remained the same. This is quite a contrast to the impossible 535 years it would take in the current economy.
Likewise, a flight to New York previously took 2 years of saving compared to 35 years and for a pair of £100 trainers it would have taken 4 months in contrast with 6 years.
How long it would take to buy a car with various interest rates?
How long it would take to save up for items with £600 in savings
Our previous research revealed a third of Brits have £600 or less in savings. In this circumstance it would take more than 14 years to make enough interest to purchase a £20 takeaway. Even purchasing of smaller products would involve a lengthy saving period, with a cinema ticket taking nearly 6 years and a 200g £2 Dairy Milk bar requiring 18 months. If you had planned on buying some new trainers with the interest acquired from £600 savings, you would have the money to do so in 67 years.
Finder’s savings expert Matthew Boyle’s gives his advice:
“Putting our spare cash into a savings account has been the norm for generations. This made a lot of sense because interest rates were significantly higher than they are now – for example, the average rate on savings accounts only dropped below 5% twice between 1980 and 2000.
“However, the savings landscape is very different now. While your money is not at risk when you save, the average interest rate of 0.25% on easy-access savings accounts at the moment is significantly below inflation, so you are still effectively losing money.”
If you are keen to look at other options to grow your savings then consider these:
Put your money into a good savings account
If you’re keen to continue saving with a bank then ensure your money isn’t sitting in an account that doesn’t pay interest. Even though interest rates are low at the moment, there are still a wide range of rates out there. Alternatively, you could also keep an eye on current accounts, like with Nationwide, Natwest and RBS, that previously paid out joining bonuses. The bonuses are all on pause due the current pandemic, but they may be started up again over the next few months.
This is another option where your money isn’t at risk. It works by offering cash prizes every month instead of guaranteed interest, so while you could end up not winning anything, the top prize is £1 million. When you look at the total amount of prizes paid out, the effective interest rate is currently 1.4% each year.
Consider a stocks and shares or lifetime ISA
If you are willing to take a riskier option for your money, now could be a good time to put some of your savings into an ISA. Markets like the FTSE have historically outperformed savings accounts and they still haven’t fully recovered from the coronavirus disruption, although your money is at risk of decreasing with this option. If you’re saving for a house or retirement then you should also look at lifetime ISAs as the government will give a bonus of 25% on what you pay in (up to £4,000 per year).
For all media enquiries, please contact
Matt Mckenna UK communications manager T: +44 20 8191 8806
Finder analysed the average interest rates of 236 easy-access savings accounts on the market (as of 29 June 2020), with the average rate of interest being 0.23%. The compound interest you would earn with this per month was then calculated with various different starting amounts to work out how long it would take to afford a range of items with the interest.
The average interest rate of the noughties (between 2000 and 2009) was calculated by looking at the yearly averages, as done by Swanlow Park.
The average savings amount of £6,750 came from a survey Finder commissioned with OnePoll in April 2020.
Matthew Boyle is a mortgages and home services publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife.
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