Millions of savers are being hit by a “loyalty penalty” that could quietly drain more than £1,600 from their accounts, new analysis suggests.
Around 8 million UK savers are stuck earning 1% interest or less, leaving their money languishing in low-paying accounts while better rates are available elsewhere.
Figures from LHV Bank show how damaging this inertia can be.
A typical saver with £20,000 earning 2.54% would see their balance rise to £22,672 after five years.But if that same money earned 4%, it would grow to £24,333 – a 62% bigger gain – leaving the saver £1,661 better off.
That shortfall is equivalent to about £28 a month slipping through the cracks.
The gap is driven by the power of compound interest, with the difference widening each year:
- Year 1: £292
- Year 2: £603
- Year 3: £934
- Year 4: £1,286
- Year 5: £1,661
Even those with smaller balances are affected. A saver with £10,000 at 2.54% would end up with £11,336 after five years, compared with £12,167 at 4% – a difference of £830.
The findings highlight how sticking with the same bank can come at a cost, particularly as many providers have been slow to pass on higher interest rates.
With the average UK adult holding just over £19,000 in savings, and under-55s typically holding around £9,000, the impact of poor rates can be significant.
Inflation adds further pressure, eroding the real value of cash if returns fail to keep pace.
Kris Brewster, Interim CEO of LHV Bank, said: “Many savers assume their bank will treat them fairly if they stay loyal.
“In practice the numbers show the opposite is true. Leaving savings in a low paying account for years can quietly chip away at the value of that money.
“Just a small, but significant, difference in rates can create a large gap over time because interest compounds each year.
“For many households that could mean hundreds or even thousands of pounds lost.
“With the majority of UK adults lacking confidence in financial matters, savers need to be able to trust in providers to do the right thing when it comes to savings products.
“UK savers need clear and simple accounts with strong rates that last, rather than short term offers with gimmicks that drop away after a few months.”