People in the UK seem to have an aversion to making money if the latest figures by the Bank of England are anything to go by. Some £280bn is sitting in UK accounts earning no interest at a time when rates are north of 5% for some savings accounts.
Just a 3% return on last year’s zero-interest cash could have earned savers £8.4bn, whereas a 5% return would have amounted to £14bn. But as Laura Suter, director of personal finance at AJ Bell, said, the figure “sums up the apathy of the UK’s savers”.
There are reasons why people have so much money sat in zero-interest accounts. For starters, they are likely to be the place they get their pay cheques and where they make most, if not all, of their outgoing expenses from.
These accounts are transactional and tend to pay very low levels of interest, so one option could be to make sure you leave enough in there to cover bills and outgoings but put the rest to work elsewhere.
One place I wouldn’t use as an alternative is Premium Bonds, where analysis from AJ Bell revealed some two-thirds of bondholders have never won a prize.
Yet they remain one of the most popular savings vehicles, with some £127.7bn sitting in these accounts at the end of 2024. While National Savings & Investments quotes a 3.8% variable prize fund rate, there is no guarantee that savers will ever get a penny.
The odds of any £1 bond number winning a prize, even the lowest £25, is a whopping 22,000 to one, with the latest data showing the number of bonds owned has now risen to more than £130bn.
So what should savers do instead? The obvious answer is fixed rate bonds or cash savings accounts that pay a healthy interest. These are both low-risk and come with the certainty of returns.
While perhaps not as rock-and-roll as the chance to win £1m, with the odds of getting any money back from Premium Bonds so low, this certainty is a much better bet.
For those who have a lot of cash on the sidelines, cash ISAs are a solid way to ensure that interest earned remains tax-free. At least for now.
Chancellor Rachel Reeves is suggesting cutting the cash ISA allowance to encourage people to put their money to work more. This has led to a spike in savers putting money into cash ISAs in the run up to the end of the most recent tax year (they added £4.2bn in March alone), but there are still clearly a lot of people who could benefit from using it.
Then there is investing. For the most risk-averse, money market funds, which typically pay a higher rate of interest than the Bank of England base rate and savings accounts, might appeal.
For those looking longer term, investing in the stock market is the way to go – or at least, it has been historically.
However people make their money work for them, it is clear there are plenty of options available. It is time people put their cash to work, instead of missing out.