Brits are more likely to have money in no-interest accounts than in fixed rate products paying the average rate of 3.7%, according to analysis by AJ Bell.
The investment platform has now offered guidance to consumers on how to make the most of their money and improve savings potential following the data released by the Bank of England which shows how much cash is not earning any interest.
This money was missing out on over £12 billion of interest a year, compared to earning 4% interest.
Currently the majority of UK consumers’ savings are in easy access accounts and worth a total of £911 billion. These accounts pay out an average of 1.6%. Meanwhile, £483 billion is in Cash ISAs, which pay an average of 3.3%.
Sarah Coles, head of personal finance at AJ Bell, said: “Saving is hard work. With prices rising on all sides, we’re going all-out to squirrel cash away to protect us from the unexpected, and build towards the things we really want in life.
“So, when we’re putting a shift in, it’s disappointing if our savings aren’t working as hard on our behalf.”
The good news is a lot of people are taking advantage of savings products, with the proportion of household money available for saving growing to 8.9% in 2026 compared to the past 10 years when it had been 6.7%.
However, Coles was still concerned that there will still large sums of money not earning their full potential.
“There’s a huge pile of cash sitting in accounts paying no interest at all,” she said. “We’re not only missing out on this interest, we’re also losing the spending power of our cash over time, as inflation chews its way through our money.
“Leaving this money languishing in your current account, or sitting around in ancient savings accounts paying nothing, means your money is less and less valuable with each passing month. We need to escape the current account trap and move money into savings or investments.”
Coles offered five guidelines people can follow to help them build a sensible savings strategy.
1. Select the right savings accounts
Everyone should have an emergency savings fund and an easy access account is the best product for this.
For those of working age it should cover three to six months of essential spending – for those in retirement it should cover one to three years.
But for everything else, Coles said savers should look at other products. For those who need money within the next five years – not immediately – a fixed rate account is ideal. These offer a guaranteed rate of interest which tend to be more generous than easy access.
“You can open a number of accounts, for different purposes, fixed for different periods,” Coles added. “If you use a cash savings hub, you can hold different accounts with different banks in one place, which makes it much easier to keep an eye on everything.”
2. Shop around for the best savings rates
Bank of England data showed the average account is currently paying just 1.6% interest – but there are some which pay 4.55%, when you exclude those with restrictions and bonus rates, Coles advised.
Fixed rate accounts are seeing increases at the moment, and Coles said you can currently make 5% over three or five years, and almost as much over one and two.
She added: “It’s vital to shop around for a more rewarding home for your money. Use comparison sites or cash savings hubs to find and compare the best rates available on the market.”
3. Consider if you will need to pay tax on your savings
“For those with large cash balances and higher rate taxpayers, it’s also important to consider Cash ISAs,” Coles said.
“You may not be able to get quite as much in interest from an ISA as the very top savings accounts, but after tax, the protection afforded by the ISA could mean you end up better off.”
The Personal Savings Allowance (PSA) differs according to your tax band, but means the first chunk of interest each year is tax-free. For basic rate taxpayers this is £1,000, for higher rate taxpayers it’s £500, and it disappears entirely for additional rate taxpayers. Coles said interest received annually above these levels is taxable and could benefit from being held in an ISA.
4. Don’t overlook money market funds
Coles also suggested money market funds, which are investments rather than a savings account. They typically pay a higher rate of interest than savings accounts at banks, at a lower level of risk than equity funds.
“Money market funds put their money in cash and cash-like investments, such as short-term loans and high-quality bonds, which makes them a good instrument to park cash in and earn a steady return,” she said.
“Some people may also use money market funds as a lower-risk entry point to start their investing journey.”
5. Consider investing more broadly
After your emergency savings and cash for planned expenses over the next five years, Coles said you should look further into the future – for the longer term of five or 10 years. Investing in stocks and shares is a strong option for this timescale.
“The value of your investments will rise and fall over the short term”, she said, “but as long as you have a longer time horizon, you should have the opportunity to ride this out and take advantage of the long-term growth potential of investments.”