Bamboozled into dismal savings rates

More than one in five savings accounts in the UK are offering shameful interest rates, paying less than £5 a year on £5,000 of savings.

So what can we do about it?

The figures were unearthed by Which? It found that 384 bank or building society accounts in the UK were offering these shocking rates. And even more alarmingly, this is up from 313 last year.

Confusing rates

It also highlighted a number of organisations which have an array of different accounts, which bamboozles us into assuming we are getting the higher rate being advertised on one of the other accounts, when in fact we are making 0.1% or less.

It said that some institutions have more than 20 accounts, so it's no wonder we lose track of which variation we have invested in, and how much we are making on our savings.

The problem is often that once you have held an account for a while, the bank will lower the rate. Gradually, over time, you will be offered less and less of a return on your savings. If you turn your back for a year or more, you could be in for a horrible surprise when you check the small print and find that the rate which was once at the top of the charts is now languishing at the lower end of the league tables. Meanwhile, the company will launch a spangly new account, paying table-topping rates, in order to draw more new money into its vaults.

It's not a new phenomenon. It's just that with rates bumping along the bottom, it means that when your rate drops you will be getting next to no interest. At the same time, inflation will be taking a huge chunk out of it, leaving you with less and less savings every year.

So what can you do about it?

There was a time when you used to be able to pick a mid-table account that wouldn't move too much and had a track record of offering reliable, dependable rates. However, we can't afford to do that now. These accounts will guarantee to lose money after inflation, and no-one can stand to lose money when every penny counts.

Sadly nowadays there's no alternative to putting in the legwork. You need to keep an eye on your account, and pledge to switching on a regular basis. You need to revisit your accounts at the very least every six months, and ideally every three. If you're not getting a good enough rate, you need to chase the rates at the top of the table and get moving.

It's not easy to get round to it, which is why so many of us end up with a huge disappointment when we open our statements instead. The only solution is to put a date in the diary and commit to spending a couple of hours on this every few months.

The system is clearly a horribly flawed one. But until something is done to change it, our only option is to exploit it as best we can.