New research from Which? Money has uncovered that 40% of ‘zombie’ savings accounts closed to new business are paying interest of no more than 0.5% – with nearly one in five paying a miserable 0.1% or less.
These zombie accounts make up 80% of the total market for instant access and notice savings accounts, accounting for 1562 of the 1952 products available. But many pay tiny rates of interest that will never increase.
Check your savings rate
Which? Money found that 607, almost 40%, of the closed accounts we looked at pay just 0.5% or less in interest. And 258, or 17%, pay 0.1% or less. Halifax’s Liquid Gold, Barclays’ Savings Builder and HSBC’s Instant Access all pay the worst rate of 0.05%. This would earn you a pitiful 50p a year on savings of £1,000.
So if you have a savings account that’s closed to new business it’s time you checked your rate. Remember that it may have had an attractive initial rate, but may have dropped in value once an introductory bonus on the account expired.
Isa savings rates
Of all the zombie accounts we found during our research in October, most are instant access savings accounts. But your Isa savings could be affected too – just under 400 of the closed accounts we found were Isas.
The worst paying instant access Isa pays just 0.1% – that’s just £1 a year on £1,000 savings.
Out with the old, in with the new?
It’s not just zombie accounts that are paying miserable rates. Of the 390 accounts still open to new business, 35% (137) pay 0.5% or less.
And not all closed accounts are paying pitiful rates. The best closed account, the Cash Isa from Barclays, still claims to pay a healthy 2.8%.
But if you are earning a pittance from your zombie account, it’s time to switch. The best instant access account from the AA pays 1.6% – including a 1.1% bonus for the first year. Meanwhile the best cash Isa accepting transfers, the Virgin Money Easy Access account, offers 1.75%.
Savers need clearer information
The Financial Conduct Authority (FCA) is currently investigating the £1 trillion savings account market. Which? wants the regulator to force savings providers to be provide clearer information to savers on statements.
We also want to see customers receiving better notifications when their rate falls or a bonus comes to an end, and on the maturity of fixed rate accounts.