Millions of pounds sit in accounts paying almost no interest. Here’s how much a poor rate costs you on £10,000 or £20,000, and what to check before you switch.
Look at the savings account your main bank opened for you years ago. The one with the friendly name, where you put the redundancy money, the inheritance or the ‘just in case’ fund. Do you know what rate it pays? Most people don’t. Banks have noticed.
Loyalty doesn’t earn you much in UK savings. Often it’s a cost. On a decent sum it can easily run to a few hundred pounds a year, and fixing it takes about as long as a cup of tea.
Some simple arithmetic, using round illustrative rates rather than any particular bank’s offer. Say you have £20,000 in an old easy-access account paying 1%. That earns you £200 a year. Move it to an account paying 4% and you get £800. That’s £600 a year for filling in a form.
On £10,000 the gap is £300 a year. Over five years, with interest left to compound, it comes to well over £1,500. Nobody’s retiring to the Algarve on that, but it covers the car insurance with something to spare.
Rates rise and fall with the Bank of England’s Bank Rate. Banks are much quicker to cut what they pay savers than to raise it. The best rates usually come from smaller banks, building societies and app-based providers. The legacy accounts at the big high-street names tend to sit near the bottom of the tables, so check yours against the current best-buy tables in the financial press.
An easy-access account lets you pay in and take out whenever you like, although some limit how many withdrawals you can make before the rate drops. Interest is taxable, but most people pay none thanks to the Personal Savings Allowance. In the 2025/26 tax year it lets a basic-rate taxpayer earn £1,000 of interest tax-free and a higher-rate taxpayer £500. Additional-rate taxpayers get no allowance at all.
That £500 runs out quicker than you’d think. At 4%, a higher-rate taxpayer uses it all with £12,500 in savings. Anything above that is taxed at 40%. Savings interest is taxed under the UK-wide rates and bands, not the Scottish income tax bands, wherever you live. The government has also announced that tax rates on savings income will rise by two percentage points from April 2027, which makes a tax-free wrapper more valuable.
That wrapper is the Cash ISA. You can put up to £20,000 a year across all your ISAs, and the interest is never taxed and never needs declaring. The tax year resets on 6 April, and any allowance you don’t use is lost. A couple can shelter £40,000 a year between them.
Two changes are worth knowing about. Since April 2024 you can pay into more than one Cash ISA in the same tax year, so you’re no longer stuck with one provider. From 6 April 2027 the government plans to cap the cash part of the allowance at £12,000 a year for under-65s. The rest of the £20,000 will only be usable in stocks and shares ISAs. Savers aged 65 and over keep the full £20,000 for cash. For many readers that makes the next tax year or two a good time to use the full cash allowance while it lasts.
The bank gives you no prize for loyalty. You pay for it in interest you never earned.
Usually a bonus. Plenty of top-of-the-table easy-access accounts and Cash ISAs only reach their advertised rate with a fixed-term bonus added on, often for 12 months. When it ends, the rate drops back to the underlying rate, which can be a fraction of what you signed up for. The bank is betting you won’t notice. Most people don’t.
So before you move, read the summary box for three things. First, the underlying rate without the bonus. Second, when the bonus ends: put a reminder in your phone for a fortnight before. Third, any withdrawal limits. Some accounts allow only a few withdrawals a year, and taking money out more often can cut the rate for that month or wipe out the bonus.
Watch for conditions too. Some high rates come only through an app, only if you hold a current account with the same bank, or only on balances below a certain figure. None of that is necessarily bad, but you’re comparing the real deal, not the advert.
Within limits, yes, provided the bank is authorised by the Prudential Regulation Authority. The Financial Services Compensation Scheme protects up to £120,000 per person per banking licence, a limit raised from £85,000 on 1 December 2025. A joint account is covered up to £240,000. Temporary high balances, such as the proceeds of a house sale, can get extra protection for up to six months.
The detail that catches people out is ‘per banking licence’, not per brand. Several familiar names share one licence, so £100,000 split across two brands from the same group may be protected only up to £120,000 in total. The FSCS website has a checker. If you hold more than the limit, spread it across separate licences.
Be wary of ‘savings’ offers that turn up uninvited by email, text or social media, especially ones promising rates well above the best-buy tables. Check the firm on the FCA Register before sending a penny.
For an ordinary easy-access account it’s simple. Open the new account, check it works, then move the money across by bank transfer. Do it in one go if you can, so you’re not left with a forgotten £37 in the old account for the next decade.
With a Cash ISA, do not just withdraw the money and pay it into the new one. That uses up fresh allowance and can lose the tax-free status of past years’ savings. Ask the new provider for an ISA transfer instead and it will deal with the old one. Check first that the new ISA accepts transfers in. A few flexible ISAs let you take money out and put it back in the same tax year without it counting against your allowance, but not all do.
Finally, how much should be in easy access at all? Keep a rainy-day fund of a few months’ spending you can get at quickly. Money you won’t need for a year or more might earn more in a fixed-rate account, though you lose access. Long-term money might belong in pensions or investments instead. Those are bigger decisions. MoneyHelper is a good free starting point, and an FCA-regulated financial adviser can help if the sums are large.
If your savings sit in an old account paying 1% or less, moving £20,000 to a competitive easy-access account or Cash ISA could earn you several hundred pounds more a year. Check the underlying rate and when any bonus ends, keep within the £120,000 FSCS limit per banking licence, and always move a Cash ISA by transfer rather than withdrawal. With the cash ISA limit for under-65s due to fall to £12,000 from April 2027, using this year’s £20,000 allowance makes more sense than ever.
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