"Banks taking advantage of savers is nothing new" as only a quarter of savings accounts can beat base rate

"Banks taking advantage of savers is nothing new", one financial expert has said, following the latest Moneyfacts UK Savings Trends Treasury Report showing that only a quarter (26%) of savings accounts can beat the Bank of England base rate. And though the choice of cash ISAs has hit a new record high, another expert warned: “Plenty of choice for savers, but precious little return.”

The Moneyfacts report found that product choice overall rose month-on-month to 2,289 savings deals (including ISAs), a record high. The choice of cash ISAs rose to 662 deals, a new record high and its eighth monthly rise. The number of savings providers overall rose to 155, another record high.

Meanwhile, the Moneyfacts Average Savings Rate fell to 3.46%, down from 3.50% month-on-month. It is down from 3.80% since September 2024, and lower than 4.29% in September 2023. The rate was last above 4% in January 2024 (4.04%).

Rachel Springall, Finance Expert at Moneyfacts, said: “Savers may have assumed with the Bank of England Base Rate falling, there would be a bigger impact on the pool of deals able to beat BBR, but that’s not true. In July, only one in 10 of standard savings accounts (10%) could beat 4.25%, and with a 0.25% cut made in August, that’s only improved slightly to one in four, or 26% of all accounts paying more than 4%. This means the majority of savings accounts fail to beat BBR.

“As inflation is expected to climb higher, this means the vast majority of savers will see their pots eroded in real terms. This will be incredibly demoralising for savers who use their interest to supplement their income, and in fact, the situation has been dire for many years.”

Scott Gallacher, Director at Leicester-based Rowley Turton, said: “Banks taking advantage of savers is nothing new, but the gap between base rate and what most people earn is stark. Savers need to shop around. In some cases, we’ve secured clients tens of thousands of pounds in extra interest simply by pointing them towards better paying accounts.”

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, also advised people to do their research: "Plenty of choice for savers, but precious little return. That’s the reality facing savers today. Over the past five years, UK inflation has compounded by around 24%, yet average easy-access rates are stuck at just 2%–3%. People think their money is working for them, but in truth it’s shrinking in real terms.

“If you must hold cash, shop around, use ISAs to shield tax on interest, and know your allowances, because for additional rate taxpayers, those allowances vanish. Inflation is the silent killer, quietly eroding wealth while savers are lulled into a false sense of security.”

David Belle, Founder and Trader at Fink Money said “too many people in the UK forgo wealth in the search for ‘safety’. The irony, of course, is that the safety they search for often has considerably worse wealth outcomes”.

Benjamin Beck, Money Coach at Beck Money Coach, added: “We've been brought up with Save, Save, Save. Unfortunately, due to lack of financial literacy, people forget to invest. Invested properly, a stocks and shares ISA can beat the returns of the Cash ISA and savings accounts. Savings are great to establish an emergency fund, or for a specific purpose, however, interest rates look even less attractive after inflation has been out to play.”

Ross Lacey, Director at Rayleigh-based Fairview Financial Management, said people should avoid holding too much in cash: "Cash savings certainly have a place but, over the long-term, it doesn't make sense to keep excessive amounts in cash. Cash savings tend not to keep pace with the rising costs of goods and services year on year. This is the reason why investing, if done as part of a proper financial plan, can provide a way to keep the buying power of your money.

“For any money kept as cash, then of course it's wise to maximise what it earns, but it's more important that the cash is accessible and sufficient to meet any known short-term expenditure requirements, and for periods where it's not optimal to be taking money out of investments, such as during periods of declining stock markets.”

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, added: “Cash is a safety net and not an investment. We all need some cash savings behind us but they're not going to give us significant growth. Beating the base rate is meaningless. Beating inflation is the key."

Patricia McGirr, Founder at Burnley-based Repossession Rescue Network, said savers are left short-changed: “Savers are being asked to play a game they can never win. The Bank of England may have trimmed the base rate, but inflation is still insidiously eating into pots, and only a quarter of savings accounts now outpace the benchmark.

"That means most savers are losing money just as households need it most. A record number of ISAs sounds like competition, yet the average saver is still left short-changed. What’s the point of 2,289 deals if most of them are smoke and mirrors?”

Fink Money's David Belle said a deeper problem is the way the UK housing market feeds our obsession with cash: "The UK housing market also plays a role in our over-reliance on cash. Most people are so precious over their house deposit that they hold it in a cash ISA. This causes a lack of wealth generation and an increase in debt in the wrong places. It also creates malincentives at the policy level where politicians think if they buoy house prices then they keep their voter base.

"But the biggest killer here is capital cannot transmit to companies in the UK that desperately want it, which leads to founders being unwilling to grow a firm to the adequate size. People's obsession with bricks and mortar is not only skewing them into cash, which delivers poor real returns, but holding back the UK economy.”