Savings warning: Britons losing BILLIONS of pounds by 'hoarding' cash in low-interest accounts

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Savers are being urged to check whether their savings are losing out of an interest rate boost

Fresh analysis from Murphy Wealth warns that British savers risk forfeiting hundreds of billions of pounds in potential returns over the coming decade by leaving their money parked in poorly performing bank accounts.

Research conducted by Lightyear using Bank of England data revealed that an estimated £1.2trillion currently sits in accounts earning a weighted average interest rate of only 1.2 per cent.

Murphy Wealth's projections suggest this vast sum would reach only approximately £1.4trillion after ten years if rates hold steady, a modest gain that pales in comparison to what stock market investment could deliver.

Should that £1.2trillion instead be allocated to equities generating a six per cent annual return, a figure well below what global markets have actually delivered over the past decade, the total would swell to just over £2trillion.

The contrast becomes even more striking when measured against the MSCI World Index, which has averaged 12.4 per cent annually since 2016.

At that rate, the money would balloon to more than £3.4trillion, representing roughly £2trillion more than the cash scenario.

Even a four per cent return, which is relatively generous for cash but attainable through existing cash ISA products, would see the combined pot reach £1.7trillion.

That 1.2 per cent average return falls dramatically short of the 3.38 per cent mean inflation rate recorded over the past ten years, a period in which prices climbed by 41.8 per cent overall.

Cash holdings earning below the consumer price index (CPI) rate of inflation steadily lose their real-world purchasing power.

Britain's deep-rooted attachment to cash is perhaps most clearly illustrated by ISA subscription patterns.

In the 2023/24 tax year, the most recent data available, roughly 9.94 million cash ISA accounts were opened compared with just 4.09 million stocks and shares ISAs.

Yet despite this numerical dominance, cash ISAs held a combined £360billion, considerably less than the £511billion sitting in their equity-based counterparts.

Efforts are now under way to shift savers' behaviour, including a proposed £12,000 annual cap on cash ISA contributions for those under 65 and the Government's "Savvy the Squirrel" advertising campaign.

Adrian Murphy, chief executive of Murphy Wealth, said: "Cash feels safe, but hoarding too much of your savings in low-interest bank accounts carries its own risks. Slowly but surely, you undermine your wealth's ability to keep pace with inflation, gradually eroding its purchasing power."

He added: "The evidence is clear: over time, a well-managed investment portfolio has consistently outperformed cash. Everyone should have a cash buffer to cover unexpected costs, but long-term savings money you do not intend on using for years should be invested.

"We need to do more to help savers realise that holding cash will not build meaningful wealth. That starts with educating people when they are young and equipping them with practical financial skills and knowledge to help them make the right decisions with their money."