Savers are being encouraged to shop around to find the best deal as experts warn attractive bonuses that draw customers in will not last long
Three-quarters of savings accounts pay less interest than the current base rate of 4 per cent, new data shows.
The average interest rate on cash savings accounts is 3.44 per cent, having fallen to the lowest level since June 2023, according to Moneyfacts.
The downward spiral for savers has been mounting in recent months, with the average rate on cash savings last above 4 per cent in January 2024.
Adam French, head of news at Moneyfacts, said savers face a “tough market” in their search for real returns.
He added: “Savers must also be aware that table-topping rates may not tell the full story.
“Several providers offer accounts with short-term bonus rates designed to attract new customers who are hunting the best returns. While these can be a great way to boost returns initially, they tend to drop off after a few months and savers who forget to review their account risk being moved onto much lower ongoing rates.”
Dwindling rates on cash savings
Moneyfacts’ latest findings show the average interest rate on easy access cash savings accounts stands at just 2.49 per cent, its lowest level since July 2023, when the average rate was 2.41 per cent.
Notice savings accounts, where someone has to notify their provider before withdrawing funds, often come with slightly higher interest rates.
However, the average interest rate on such accounts has fallen to 3.5 per cent, also its lowest level since July 2023, when the average rate was 3.42 per cent.
Savings rates on cash ISAs are falling as well, Moneyfacts said, with the average rate at 2.72 per cent.
French said: “Dig deeper into the different types of account on offer – easy access, notice and fixed savings accounts and cash ISAs – all are now paying less than 4 per cent on average.”
While interest rates on cash savings accounts and cash ISAs are falling, the number of savings deals available is rising and at a record high of 2,324.
Look out for bonuses on savings accounts
A number of banks and building societies are offering cash savings accounts or cash ISAs which come with short-term bonuses. These bonuses are designed to attract new customers searching for decent returns.
According to Moneyfacts’ research, the average bonus rate on all accounts has reached a record high, providing an additional 1.45 per cent top-up on average.
The average bonus rate on cash ISAs is 1.31 per cent, the highest level since September 2012.
Accounts providing interest bonuses are attractive to savers, but it is worthwhile making a note of when the rate will drop as there may be better deals available.
For example, Chase offers a savings rate of 4.5 per cent for new customers but this lasts only a year after which it falls to 2.5 per cent.
Similarly, Ulster Bank is offering a rate of 4.5 per cent but this drops even further to 1.75 per cent after a year.
What do lower rates mean for savers?
The Bank of England’s Monetary Policy Committee reduced the base rate to 4 per cent in August 2025, and opted to hold at this rate in September.
At the same time, inflation remains sticky and stands at 3.8 per cent. It is expected to increase further this year.
Anyone who has a savings rate below inflation is losing money in real terms.
Kevin Brown, a savings expert at Scottish Friendly, said: “The fact that 75 per cent of savings accounts are paying interest below the base rate means many savers are losing ground even though they may think they are earning.”
Conversely, a lower bank base rate can spell better news for mortgage borrowers. However, recent data from Moneyfacts this week showed that average mortgage rates are still edging up.
What should savers do?
Many savers prefer to keep a cash stash in order to cater for unexpected emergencies or large one-off costs.
With these savings being eroded by inflation, people should keep a close eye on the best deals available and consider moving to a new provider if a better and more suitable deal is available.
A number of the top-paying rates on cash accounts are only available online or via an app, which can be detrimental to those who prefer to do their banking in-person or on the phone.
If you sign up to a cash savings account with a bonus attached to it, make sure you look to switch to a different provider when the bonus rate ends.
Looking beyond cash savings can be another way to boost your returns. Investing in stocks and shares has the potential to offer higher returns, though it is not without risk.
Brown said: “Don’t let your money languish in a low-rate account just because it feels safe. A better cash savings deal can help reduce the impact of inflation, but holding too much in low-yielding cash will still see your wealth fall behind in real terms.
“The UK stock market is currently trading around record highs, although some analysts are questioning how sustainable this might be in the short-term. Nobody can predict short-term movements with confidence, but over the long run stock markets have consistently delivered stronger returns than typical savings accounts.”