Are you adding to the £280bn cash in accounts paying no interest?

If you want one figure to sum up the apathy of the UK’s savers, it’s the fact that £280 billion is sitting in accounts earning absolutely no interest, at a time when interest rates are north of 5% for some savings accounts.

The latest Bank of England data to the end of March shows that there is a mountain of cash paying no interest, which has ballooned in recent years despite the Bank of England’s base rate rising and savings rates remaining decent. The pile of cash getting no return has grown in the past year, by £51 billion.

The nation is missing out on millions of pounds of potential returns on their money. Even if the £230 billion sitting in zero-paying accounts a year ago had earned a rather pedestrian 3% return on the cash in the past 12 months, it would have made the nation £6.9 billion richer.

Not only is the money not earning any interest, it’s also being eaten away by inflation. While inflation has dropped from its double-digit highs, it is still chipping away at the spending power of your money each year. Keeping the money in your current account or an old savings account earning nothing is as good as stuffing it under your mattress – although admittedly the latter is probably a more comfortable option for sleeping at night.

It’s been mooted that the government is planning to cut the amount of money people can hold in Cash ISAs, as a way to help move more people into investing. But people also need to take action themselves to ensure that they are getting the most from their cash. The top paying easy-access savings account is paying 4.59% currently*, meaning those with £15,000 in savings could be earning £688.50 a year in interest. Assuming no other savings income, this would be covered by the personal savings allowance, meaning it is tax free. Those with meatier savings of £50,000 are missing out on potential annual interest of almost £2,300.

Are you better off investing?

While most people choose to keep some money in cash, any savings that you don’t plan to use in the short term may perform better if they are invested. While investing comes with greater risk, history has shown it also tends to lead to greater rewards. Putting your money in the market also offers a greater level of protection against inflation, which interest rates aren’t always able to beat.

The power of investing grows the longer you keep your money in the market. For example, if you put £10,000 into a savings account that earns 2% each year, in 10 years you would have £12,190. But if you invested that same amount and earned 5% per year after fees, you would accumulate £16,289. If you kept those same accounts for 30 years, your cash savings would amount to £18,114, while your investments would more than double this amount, at £43,219.

Currently, cash savings accounts are offering quite attractive interest rates. But these are subject to change over time, and even if you lock in a fixed-rate account, you may be left with very different options when that term expires.

Six ways to avoid zero-return accounts

1. Keep as little as possible in current accounts. These accounts are transactional and consequently tend to pay very low levels of interest. Make sure you do leave enough in there to cover bills and outgoings though, to stop you dipping into your overdraft and paying interest and fees.
2. Shop around for the best rate. Trusting your high-street bank or existing provider to give you the best deal on savings won’t get you very far. Use comparison sites or cash savings hubs to find and compare the best rates available on the market. The AJ Bell Cash savings hub offers both fixed-term deposit and notice accounts with a variety of banks to allow access to top rates in one easy-to-manage place.
3. Don’t forget Cash ISAs. 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. It depends what rate of tax you pay and how much interest you have from other sources. That’s because the personal savings allowance allows you to receive a certain level of interest tax-free every year. For basic rate taxpayers this amount is £1,000, for higher rate taxpayers it’s £500, and for additional rate taxpayers it’s £0. Interest received annually above these levels is taxable and could therefore benefit from being held in an ISA.
4. Consider gilts. DIY investors have been ploughing large sums into short-dated, low coupon gilts recently. These come with a government guarantee of repayment on maturity and much more attractive rates of return now interest rates have risen. The particular appeal though is that capital gains from gilts are tax-free, so if you can identify bonds where almost all the return is coming from capital appreciation rather than an income yield, you pay less income tax. This approach is only for those who understand gilts and are willing to roll up their sleeves to find appropriate bonds.
5. Consider money market funds. Another alternative is money market funds, which typically pay a higher rate of interest than the Bank of England base rate and savings accounts at banks. This makes them a good instrument to park cash and earn a steady return. Money market funds put their money in cash and cash-like investments, such as short-term loans and high-quality bonds. Money market funds can also be held in an ISA, which means no tax is liable on the income paid.
6. Think about investing. Conventional financial advice is you should have three to six months of expenditure in cash, so if you’ve already got this parked in cash accounts, you should think about investing any excess for the longer term. Data from Barclays shows that over 10 years there is a 91% chance shares will outperform cash.

*Based on MoneySavingExpert data, accurate to 1st May 2025.