Beware banks that pay 0pc

SAVERS are piling a record amount of cash into easy-access accounts, but some will now pay them nothing in return.

The amount of money stashed in accounts that pay no interest — such as current accounts — ballooned by £9.1 billion in May to stand at just under £200 billion.

And most of the £814.6 billion in easy-access accounts is with big banks that typically pay the worst rates. The average is just 0.24pc, according to Moneyfacts. It adds that the number of savings accounts available has also shrunk to the lowest levels since 2007, falling by 370 to 1,398 since March.

All major banks now pay just 0.01pc — or just 10p interest if you leave £1,000 there for a year. As of this week, Cynergy Bank now pays no interest on its Classic Saver, Variable Rate Isa and Junior Isa, which are closed to new savers. Big banks could follow suit.

However, if you moved your money to top payer National Savings & Investment’s Direct Saver at 1pc, you would pocket £10 in interest on the same £1,000. You can withdraw or add money at any time.

Regular savers putting aside £100 a month would earn just 7p interest over a year in an account paying 0.01pc. But if you deposit £100 a month into NS&I’s Direct Saver instead, you would earn £6.52 interest.

The difference may not be huge, but it gets you into the habit of seeking out the best deals for when rates do rise. It is likely that the big banks will remain among the worst payers when this does happen.

You can earn a higher rate if you sign up for a regular savings account — but many have strict rules on withdrawals.

HSBC offers its current account customers 2.75pc if they save between £25 and £250 a month for a year in its Regular Saver. On £100 a month you end up with £18.03 interest. But if you make a withdrawal or close the account your rate will plummet to 0.01 pc.

Coventry Building Society’s Regular Saver pays 1.85 pc. You will be charged the equivalent of 30 days’ interest for withdrawals — on a £1,000 withdrawal this equals £1.52.

Virgin Money Regular E-Saver pays a lower 1 pc on deposits of up to £250 a month for a year but it is free to make withdrawals.

If you want to lock away money you have already saved for a year, you can opt for a fixed-rate bond. Unlike with easy-access accounts, you have a guarantee that the rate will not fall for at least 12 months.

The best one-year fix is with newcomer Allica Bank at 1.05pc for 12 months on a minimum deposit of £1,000.