Savers leave cash in current accounts because interest rates are now so low

INTEREST rates are so low that savers are choosing to keep their cash in current accounts rather than products such as Isas.

Nearly half of adults are using their current account to build up their nest egg, according to a poll, compared with just a third who use a cash Isa.

Only one in four have opted for a taxable savings account, while one in five use a stocks and shares Isa.

The survey by Nationwide Building Society reflects the paltry returns on traditional saving products. According to finance website Moneyfacts.co.uk, the average cash Isa offers just 1.38 per cent interest. This compares with up to 5 per cent interest on current accounts.

For example, Santander’s 123 current account offers 3 per cent interest on balances between £3,000 and £20,000, while Halifax’s Reward current account pays £5 a month.

Lloyds Bank also offers up to 4 per cent interest on balances up to £5,000, and Nationwide has an account providing 5 per cent interest on balances up to £2,500 for the first year. The findings of the survey, which questioned 2,000 people, come ahead of changes to saving rules which mean many people will no longer have to pay tax on their interest.

From April 6, basic rate taxpayers will be able to earn up to £1,000 in interest on their savings tax-free, while higher-rate taxpayers will see the limit set at £500.

The poll also revealed that holidays were the most popular reason for putting money away, chosen by a quarter of those questioned. Christmas received 15 per cent of the votes and one in ten said they were saving for a new car.

One in 12 said they were saving for a deposit on a house.