Each of the UK’s five largest banks offer at least one savings account that pays 0.5% or less, creating ‘zombie accounts’ for millions of Brits – savings accounts that pay such low rates of interest that the capital in the account is barely alive.
Research from RateSetter also identified over 20 “zombie-teaser accounts” offered by high street banks – those that pay respectable rates of interest for a limited time but then transform into a lower-paying account.
For example, First Direct offers a regular savings account that pays 6% to savers who make monthly deposits of between £25 and £300. After 12 months, that account switches to one of two other accounts, which pay from 0.05% to 0.25% - resulting in a reduction of more than 5.5 percentage points.
Meanwhile Lloyds offers a cash ISA which pays either 0.75% or 0.8% depending on the balance held. However, after one year, the account automatically changes to an Instant Cash ISA which pays just 0.25%.
Commenting on the new figures, Rhydian Lewis, CEO at RateSetter said:
“It is in banks’ interests to pay the lowest rates they can competitively get away with, so it’s not surprising that zombie accounts with pitifully low rates are gnawing away at the UK’s savings.
“However, savers needn’t feel trapped by the high street zombies. There are now several different ways for savers and investors to make sure they get the most for their money, so it’s important that people check the interest rate they’re getting, go online and shop around.
“We believe that calculated risks are both necessary and acceptable for investors to earn zombie-beating returns, and it appears that – with a growing number investing in peer-to-peer platforms like RateSetter – this is becoming a more widely held view.”
