Current account customers missing out on interest

Analysis by first direct of pre-pay day positive current account balances has revealed that UK workers are missing out on a savings pot of £47.6billion by failing to transfer their pre-pay day balances into a savings account. With current competitive interest rates of 3% AER this sum could be earning £1.7billion in interest each year.

The analysis by first direct of its customer base, which this month celebrates its 21st anniversary, reveals the most common date for pay day is the 29th of the month.

Almost two thirds (63%) of first direct customers have a positive balance in their current account on the day before they get paid, an average float of £2,590. However, if they instead moved this money to a saving account using the sweep facility they could earn themselves a healthy sum of interest over the course of a year. If this is typical among the UK's 29.16million workers, it means a total of £47.6 billion sits in current accounts at the end of each month.

In addition, the analysis reveals that the average float held in customers' current accounts grew by 5% over the past 12 months from £2,455 in September 2009 to £2,590 in August 2010. This is ahead of wage inflation over the past year indicating people are being more careful with their income, yet if they had moved this sum into savings it could have earned considerably more interest.

first direct calculates that an average customer will be better off by £78 a year with a Fixed Rate Savings account, which has a fixed rate of interest for a year.  With the first direct Fixed Rate Savings, currently paying 3% AER, a lump sum of £2,590 could grow to over £2,668 in just 12 months.

Just 0.6% of first direct's 1.2 million customers use the free sweep facility on their current accounts, allowing them to automatically move money from their current account into a nominated savings account. The majority of customers are missing out on building up a savings pot when it would cost them nothing but a few minutes to set up the facility.

Richard Brown, Senior Saving Product Manager at first direct commented: "It is incredible that across the UK there is £47.6billion that is potentially not working as hard as it could be for the country's workforce.

"By simply transferring the excess cash in your savings account at the end of each month, you could accrue a substantial sum in a savings pot. This is cash that is otherwise absorbed into your next salary deposit which could in fact be working far harder for you in another account. In the current climate it is worth taking simple measures like adding a sweep facility to ensure you are making the most of your hard earned cash."

Unsurprisingly, the findings show that the younger you are, the less likely you are to have a positive balance at the end of the month. However, almost half (48%) of those aged under 21 have an average float of £504, which over a year could accrue them £519 including interest if moved to a savings account. This rises to £3,546 for the over 60's.

Those living in London and the South have the highest overspill left in their current accounts each month, if moved to a savings account Londoners could grow this excess to a healthy £4,106 in a year.

Customers can set up an automatic monthly sweep to move money from their 1st Account to first direct's instant access savings accounts to maximise the amount they earn from their savings. The customer sets a date of the month for the money to be moved and a minimum amount to keep in their 1st Account and whatever remains will be swept into a savings account of their choice to take advantage of the higher interest rate.