Are you earning negative interest on your savings?

5 November 2012

Bitterwallet - how to open a bank account for a foreign nationalDo you think you are savvy about your savings? Do you have any? New research from Populus suggests we are not quite as clued up as we think.

Despite 80% of those surveyed saying they had “a firm grip on their personal finances”, 70% admitted they did not know what interest rate they were getting on their savings. Only 12% could name the current rate of inflation (clearly not Bitterwallet readers who all know that the CPI measure is currently 2.2% and the RPI 2.6%). And if you don’t know the rate of interest and you don’t know the rate of inflation, how can you possibly know whether the rate of interest on your savings is higher than inflation. And if it’s not, then your money is losing money.

The survey also found that, after taking tax into account (20% for basic rate taxpayers, normally deducted at source) less than 21% (227) of the 1,092 savings accounts available on the high street paid a return that ensured your money would keep pace with inflation. This means there is a very high percentage chance that your money is not working hard for you. In fact, it’s lazing around drinking cocktails.

Of course, there are ways to get around the problem- find a higher rate, or invest in tax-free savings, so at least the equivalent net rate of return is higher. You could even invest in Government stocks over the longer term or dip your toe into the peer-to-peer lending pool, through sites like Zopa. Although do note that peer-to-peer lending is not covered by the FSA savings guarantee. Some providers will offer index-linked products, where the interest rate is tied to inflation, although again, these are likely to be longer term products, and you still need to take account of the tax due on the interest generated to make sure they really are inflation busting.

Andrew Hagger, a personal finance expert from, said: “Many people will be shocked when they realise how low their interest rate has fallen and it should act as a wake-up call to investigate higher paying alternative savings options.

"With savings rates currently falling like a stone and inflation taking a chunk out of what little income that’s generated, it’s important that consumers make time to find out the interest rate they are getting on their nest egg.” It is also worth remembering that September’s inflation rate was the lowest since November 2009; if rates increase, a marginally inflation-beating account may soon fall by the wayside.

Almost 25% of the people surveyed had no savings at all. This may be because they have no spare money, or because they decided to stick it in the mattress for all the good it would do sitting in a bank account. Blow-up mattresses might even be better for inflation…

TOPICS:   Economy   Banking


  • Rohit M.
    What can you do with savings interest rate so low. CDs may be slightly better but still very low. One option I have found that gives decent returns is pear to pear lending but that does come with additional risk, so don't go over board with p2p to get extra interest but make it part of a diversified portfolio.
  • badger
    Ooh, I love pears.
  • Yorkie
    thanks Rohit! Do you have any other fruity financial tips?
  • Zeddy
    @Yorkie: Have you tried investing in Apple(s)?
  • Chewbacca
    goddamn it bw
  • Chewbacca
    Well people, looks like “rohit” is trying to promote his site: themoneymail So, judging by the fact the he can barely speaka da English, and cannot tell the difference between peers and pears here’s my advice: AVOID themoneymail themoneymail HAVEN’T GOT A CLUE themoneymail IS A SCAM themoneymail WILL KILL YOUR CHILDREN themoneymail IS A FRAUD SITE PUPPIES DIE WHEN YOU VISIT themoneymail Hopefully that will increase his page rankings somewhat.
  • Dick
    > Are you earning negative interest on your savings? If you are paid interest, then you are not earning negative interest. Granted, your money may not buy as much as it did in the past due to inflation, but you are not earning negative interest or paying for the account. Compare it with the alternative of taking money out of the bank and stashing it at home. There you earn precisely nothing. This means your money is worth even less when inflation is taken into account. Even a 0.1% interest account is better than zero. I am still surprised that a small but significant percentage of people read headlines like "negative interest" and then take their money out and stash it elsewhere, since they don't want to lose money.
  • Mustapha S.
    My wife was earning negative interest with Santander ISA. Put £5k in one month, next month the balance in it was £0k. Makes Wonga look cheap. Silly Spanish twats took 3 months to find it, no wonder their country has gone down the pisser.

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