Savers are missing out on millions of pounds in interest by choosing instant savings accounts instead of fixed products – but the gap is narrowing.
Using data from Moneyfacts.co.uk and the Bank of England, research by first direct has found that by choosing not to fix their savings in favour of instant access accounts in 2011, UK savers have seen a loss of possible interest earned of £551 million.
While significant, this figure, although £86 million smaller than the £636 million lost in 2010, is mainly due to a fall in fixed account interest rates and a small rise in instant access rates.
The figures are based on a savings balance of just over £3,200; on an average one year fixed rate account offering 2.00% savers would receive interest of £64.86. Savers with average access accounts would receive far less at £7.72.
On average, this represents £57.14 in lost interest to each saver who has opted for the flexibility of having instant access to their savings over the past twelve months, smaller than the £64.53 average loss in 2010.
In fact, it is the smallest amount lost over the past five years as the low base rate environment shows no sign of abating.
Despite 2011 representing the largest average savings balance in the past five years (£3,243) the fall in fixed interest rates from 2.75% to 2.00% has increased the traditional dilemma of whether to fix or twist with savings.
However, savers can get one year fixed rate accounts offering in excess of 3.00% if they shop around.
"While historically, the benefits of fixing your savings has been clear cut, in the current interest rate environment the distinction is less obvious," said Bruno Genovese, head of savings at first direct.
"With inflation falling, and continued economic uncertainty, many savers will be tempted to try to ride out the storm and maintain flexibility with their money.
"When choosing whether to fix or have easy access to their savings, people need to be clear on what they are saving for. If it is more of a rainy day fund for use in case of unexpected events or emergencies, instant access savings are the best idea.
"However, if the main reason for saving is a particular goal such as a housing deposit or a new car, fixing your savings may be the better option."
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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