Returns on UK savings accounts have plummeted since noughties

Abigail Fenton
·Writer
A new pair of trainers costing £100 would require the average Brit six years of saving to pay with interest. Photo: Nick Fewings/Unsplash
A new pair of trainers costing £100 would require the average Brit six years of saving to pay with interest. Photo: Nick Fewings/Unsplash

In the last decade interest rates have plummeted, leaving Brits receiving far smaller returns on their saved cash.

Someone in the UK with an average £6,750 ($8482) in savings would need to wait more than 535 years to buy a new Ford Fiesta with the interest earned from a typical easy-access savings account, research suggests.

Analysis of 236 accounts across the market, by personal finance site Finder, found the average interest rate now sits at 0.23%.

When this rate is applied to the average amount a Brit has in savings— £6,750, according to separate Finder research — it highlights how hard it currently is for consumers to make meaningful returns from savings accounts. 

A new pair of trainers costing £100 would require more than six years of saving, while the wait to afford items worth a few hundred pounds stretches over a decade. 

If you wanted a Playstation 4 costing £250, it would take almost 16 years of saving before you could buy it with the interest earned. For a flight to New York costing £559, the saving period stretches to 34 and a half years.

READ MORE: Coronavirus — a third of Brits eating into savings in lockdown

Even a consumer hoping to use the interest they earn to buy something relatively small would need to wait over half a year — about 7 months — to buy a cinema ticket or 16 months to buy a takeaway worth £20. 

If the average interest rate across the noughties, 4.45%, was available today, a consumer would be able to gain enough interest for a Ford Fiesta in a relatively short 28 years — 507 years less than it would currently take.

Similarly, a flight to New York would require less than two years of saving — about 22 months — compared to more than 34 years, while a pair of £100 trainers would need only four months of saving as opposed to six years.

Finder’s previous research also found a third of Brits have £600 or less in savings. If this were the case for a consumer, then it would take them over 14 years to gain enough interest to spend on a takeaway.

Even smaller items would also require a long saving period — a cinema ticket would take almost six years — about 70 months — while a 200g bar of Dairy Milk would need 18 months in order to gain the £2 in interest.

READ MORE: Coronavirus — Savings deals at worst rates in over a decade

If you hoped to buy a pair of trainers with the interest from £600, you would be able to do so in 67 years time.

“Putting our spare cash into a savings account has been the norm for generations. This made a lot of sense because interest rates were significantly higher than they are now — for example, the average rate on savings accounts only dropped below 5% twice between 1980 and 2000,” explained Matthew Boyle, banking specialist at Finder.

“However, the savings landscape is very different now. While your money is not at risk when you save, the average interest rate of 0.25% on easy-access savings accounts at the moment is significantly below inflation, so you are still effectively losing money.”