Savers Warned: Forgetting to Switch Accounts and Leaving Cash in Current Accounts Could Cost Hundreds
Falling base rate and rising likelihood of paying tax on interest put a premium on switching fixed-rate deals, using ISAs and tracking allowances, experts say
Savers face the double squeeze of lower base rates and a rising chance of paying tax on interest, with experts warning that a handful of common mistakes could significantly reduce returns.
Some 2.64 million people are expected to pay tax on interest earned in savings accounts in 2025-26, according to HM Revenue & Customs, and advisers say many of those liabilities are avoidable if savers manage accounts and allowances more actively.
Financial commentators who spoke to This is Money identified four errors that commonly cost savers: failing to move money when fixed-rate or bonus periods end, not using Individual Savings Accounts, missing little-known tax allowances, and leaving large balances in low- or no-interest current accounts.
Failure to switch at maturity can hit returns immediately. Many accounts offer an elevated rate for a limited period and then drop to a much lower standard rate. Andrew Hagger, founder of independent information website MoneyComms, noted that some short-term bonuses disappear after 12 months. He pointed to examples such as Cahoot’s simple saver, which advertises a 4.40 percent rate that includes a 3.41 percentage-point bonus, and Tesco Bank’s internet saver, which carries a 4.10 percent headline rate including a 3.05 percentage-point bonus. "Failure to switch lumbers you with a poor savings rate," Hagger said. Cynergy Bank’s one-year fixed-rate ISA was cited as paying about 4.32 percent while the default variable ISA rate on maturity can be as low as 1 percent.
Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, urged savers to set diary reminders for account maturity dates. She said savers can "pay the price for forgetting about these accounts" when bonus periods end or fixed terms roll into inferior variable rates.
Tax rules are also catching more savers. The Personal Savings Allowance (PSA) gives basic-rate taxpayers £1,000 of interest tax-free and higher-rate taxpayers £500, while additional-rate taxpayers receive no PSA. In some cases, low earners can combine a personal allowance of £12,570 and a starting rate for savings of up to £5,000 to shelter interest from tax. Coles said rising savings balances and frozen income tax thresholds mean people can move into higher tax bands — and see their PSA halve or disappear — without noticing.
The most secure way to shield interest from tax remains the Individual Savings Account. ISAs allow interest to build tax-free and have an annual subscription limit of £20,000. Coles recommended that savers consider moving money into cash ISAs sooner rather than later if they are approaching levels where tax will apply.
A separate cost comes from leaving cash in current accounts. Data cited by savings specialists show an estimated £526 billion may be sitting in current accounts that typically pay little or no interest. Paragon Bank figures referenced by advisers suggest one in three people hold about £5,000 in their current account, while the average current account balance is about £2,067. Keeping £5,000 in a top easy-access account paying roughly 4.3 percent would produce about £215 in interest a year, compared with near-zero returns in many current accounts.
"Keeping your savings in your bank current account is rarely a good idea," Hagger said. He warned that idle balances can be accidentally spent and that savers lose the benefit of higher returns available elsewhere.
Experts also highlighted transfer and spouse allowance strategies that can reduce tax bills. Where one partner has unused personal allowance, transferring some income or using the couple’s combined ISA allowances can help shield interest. But advisers caution that savers should check product terms, notice periods and any penalties for moving funds before transferring money.
Lenders and online comparison sites frequently refresh offers, meaning better rates can appear several times a year. Financial advisers recommend building a simple monitoring routine: set calendar alerts for fixed-term maturities, check whether limited-time bonuses have ended, consider moving eligible balances into ISAs, and review current account holdings to ensure cash is working harder.
Regulatory and data sources for the warnings include HM Revenue & Customs, industry analysts and interviews conducted by This is Money with independent experts and market commentators. As rates and tax thresholds continue to evolve, savers who monitor account terms and use tax-advantaged wrappers are likely to preserve more of their interest income than those who adopt a passive approach.
