Most UK households to miss out on £2k each in interest over next 5 years

• Brand new Bank of England deposit data (published 30.04.24), reveals over a trillion pounds of British savings (65%) is sitting in low-interest accounts earning 2.12% interest.
• Most Brits don’t know what the ‘Bank Rate’ is, or that it’s currently 5.25%:
  • The vox pop video below demonstrates this,
  • as does a recent survey from the Bank of England & Ipsos, showing almost half of Brits don’t know who sets the base rate (even when given multiple choice with Bank of England as an option).
• The average Brit has £12,500 in savings, and puts aside £180 a month. Investment platform Lightyear has put these figures into its new compound interest savings calculator; results show that the majority of Brits will miss out on £2,000 of interest in the next five years if they don’t move their money out of these low-interest bank accounts.

Investment platform Lightyear today releases new analysis – alongside a vox pop video – that shows that the majority of Brits will miss out on £2,000 of interest in the next five years by keeping their savings in low-interest accounts.

Lightyear’s analysis of savings data published by the Bank of England on 30.04.24 shows that the average interest rate on an easy-access savings account is 2.12%, much lower than the current base rate of 5.25%. But £1.16 trillion – 65% of all deposits – sits in these accounts and earns less than this average.1

Separate findings show that the top reason for saving in the UK is for a rainy day (57%).2

It’s clear from both these data points that people want to be able to access their money, rather than locking it away in term accounts.

Becoming £2,000 richer just by moving accounts

At the 2.12% rate that the majority gets, if you had £12,500 in savings, then put aside £180 a month (average figures for UK households)3 for five years, Lightyear’s new calculator shows you’d grow your savings to £25,279, with £1,979 of this being interest.

But if your savings earned 4% interest in that time, they’d grow to £27,200, and you’d earn £2,000 extra (or double the amount) in interest: £3,900. (Calculations for 2.12%; calculations for 4%.)4

(Five years has been used for the timeline because the average base rate over this time period is actually set to be over 4%; the Bloomberg UK Interest Rate forecast predicts the base rate will gradually drop from 5.25% to just over 4% within the next 5 years.)5

‘Hey, member of the British public, do you know what the base rate is, or who sets it?

Every year, the Bank of England and Ipsos ask over 2,000 people if they know which group of people meets to set Britain’s basic interest rate level.6 Looking at February 2024 results, under half of Brits (48%) could identify this group correctly, even though the answers were multiple choice with the correct answer of the Bank of England showing up as an option.

Lightyear did some in-person qualitative research too, to find out if people could correctly identify the current base rate (5.25%). The video demonstrates the lack of awareness members of the public have about interest rates, and subsequently how much they could be missing out on, due to banks not passing on the base rate.

[Watch video]7

Lightyear also asked members of the public which 3 words sprung to mind to describe high street banks:

[Watch video] 7

Martin Sokk, co-founder & CEO of Lightyear: “Over a trillion pounds – the majority of the nation’s savings – is kept in low-interest accounts. With base rates at a 16 year high, this just won’t do.

These accounts where the majority of cash is held, are easy access. Combine this with the fact that the top reason for saving in the UK is ‘for a rainy day’, and it’s clear to see that people want their money to be available to them.

But banks only give decent rates when cash is locked away in fixed term deposits.

As our video and the Bank of England survey data shows – people in the UK generally don’t understand what the base rate is, and that they can get a better rate on their cash somewhere else.

With rates set to stay above 4% for the next 5 years, ultimately this data means Brits will miss out on £2,000 of free money, as our new calculator demonstrates.”

Lightyear launched in the UK in September 2021. The platform gives interest on all uninvested cash, tracking the live Bank of England rate and passing value back to customers minus a flat 0.75% fee. Its current rate on uninvested GPB is 4.5%, as of August 2023, when the Bank of England raised the rate to 5.25%. There’s instant access, no minimum deposit criteria, and no maximum thresholds either.

As well as providing interest on uninvested cash, on the investing side, Lightyear gives access to 3,500+ international stocks and ETFs across the US, UK & Europe.

Lightyear has seen the amount of UK customers with interest-earning cash as part of their portfolio grow: the average UK customer portfolio was made up of 26% uninvested cash over 2023, compared to 18% in 2022. The platform also launched BlackRock Money Market Funds in August 2023 – a cash-equivalent investment returning 5.34% yield for GBP (gross). This increased the percentage of cash or cash-equivalent investments in an average Lightyear customer portfolio (across all 22 countries the company operates in) to 57%, demonstrating further desire to have idle and accessible cash working harder than average high street bank accounts. (Yield as of 02/05/24, subject to daily fluctuations and fees).

Footnotes & analysis

1. £1.16 trillion – 66% of all deposits – sits in these accounts and earns less than this average: 30th April Bank of England Money & Credit – march 24 report from Bankstat tables (Tables A6.1)

Workings out

2. Average rate on sight accounts is 2.12%: 30th April Bank of England Money & Credit – march 24 report from Bankstat tables (Tables G1.4)

2. The top reason for saving in the UK is for a rainy day (57%: Money & Pensions Service Nation of Savers: UK Adult Financial Wellbeing Survey report

3. Average savings figures for UK households: £12,500 saved so far per household, £180 put aside each month: Average Household Savings & Wealth UK 2023 | NimbleFins

4. Calculations for 2.12%; calculations for 4%

5. UK Interest Rates: Projections over the Next Five Years | BoE Analysis | XTB

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