Financial advisers have warned that rising interest rates are resulting in millions of pounds in interest being lost in “Zombie bank accounts.”
Zombie bank accounts are those neglected, obsolete or dormant accounts where the bank or building society offers exceptionally low rates, such as 0.1%.
Previously, when rates were virtually zero, it wasn’t an issue being stuck in a Zombie bank account as savers weren’t really missing out on much interest.
However, as rates have risen, people risk losing out on significant sums in interest due to their cash stagnating in Zombie accounts.
Scott Gallacher, a chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton, said, “Rising interest rates have resurrected the issue of Zombie bank accounts. It’s alarming to see so many people stuck in neglected bank accounts earning mere pennies on their hard-earned money.
“I recently assisted a client with approximately £300,000 in stagnant accounts. By switching to better-performing options, we unlocked the potential for up to £18,000 extra in annual interest.
“Hopefully, the FCA’s new Consumer Duty rules, which require financial firms to deliver good outcomes for their clients, will force the banks to change their ways. However, I’m not holding my breath, and savers need to be proactive and check their accounts and interest at least once a year to ensure they avoid the Zombie account trap.”
Joshua Gerstler, a chartered financial planner at Borehamwood-based The Orchard Practice, also advised savers to be proactive amid the rising rate environment.
Gerstler said, “There’s no doubt that, after all the rate rises of the past year or so, millions of pounds in interest is being lost by savers unnecessarily.”
But he cautioned, “Having said that, we still recommend holding as little money as possible in bank accounts, as over the long term it is not a good place to leave your money.”
Rob Heath, wealth director at the Newcastle-under-Lyme-based wealth manager, Net-Worth Ntwrk, highlighted the financial opportunity of being proactive.
Health said, “As interest rates have risen, our cash management solution has identified several of our existing clients and allowed them to optimise their cash holdings, unlock higher returns and explore new possibilities for cash, one to the tune of over £25,000 in interest over the past eight months alone.
“This would have otherwise sat in a ‘zombie’ account earning very little or no interest. This is a generational opportunity to earn a return on personal cash, yet still retain full control and access. It is unlikely that rates will remain high for a significant period, so it may be short-lived, but it’s an opportunity that savers do not want to miss out on.”