Losing interest in passbooks

Savers who insist on a passbook for their instant access account are losing out to the tune of around 1.25 per cent in reduced interest, according to new analysis by MoneyExpert.com.

The independent financial comparison website says that the average interest rate of passbook accounts on balances of £1/£10 is only 2.53 per cent, whereas the average rate paid by instant access accounts without passbooks is 3.78 per cent.

Typically passbooks are used by older savers who are uneasy with telephone or online banking. However, with some passbook accounts paying a miserly half a per cent on balances of £1,000, MoneyExpert.com warns many could be missing out on competitive rates.

Only six instant access savings accounts offer five per cent or more on balances of £1/£10 if you want a passbook. But if you ditch the passbook you’ll have access to a further 28 accounts paying over the magic five per cent threshold.

And the options for serious savers aren’t any better. Someone with £1,000 invested in an instant access account can choose from 64 accounts that pay five per cent or more. Only 11 of these – around one in six – come with a passbook.

MoneyExpert.com Chief Executive Sean Gardner said: “Online banking and even telephone banking is still a strange concept to some people. Many savers feel safer with a passbook.

“But they are paying a price for that peace of mind. An extra 1.25 per cent interest a year is probably worth more than a passbook, particularly if you have a lot of money to invest. The best deals are now online because the accounts are cheaper to run and make more money for the providers. And that means no passbook.

“Providing passbooks to savers is just another cost for many banks and building societies and they don’t offer the best rates to investors as a result.”

Someone with £1,000 invested for a year in an account paying 0.51 per cent will earn just £5.10 in interest and that’s before tax. The same £1,000 invested in the average of the best ten easy access accounts with passbooks will earn £52.80 in the year while in the best instant access account it would earn £57.50.

Sean Gardner added: “There are still some good accounts which offer passbooks and there isn’t much to choose between the top accounts. Unfortunately it’s hard to predict how many passbook holders will have had the opportunity to find these deals.

“Savers should seek out these accounts proactively rather than leave their money languishing in a poor paying account. If you’re getting under 4 per cent, you should consider switching. And if you’re getting under 1 per cent, you’d be as well sticking the money under your mattress.”