Martin Lewis warns savers of misconceptions on account interest

Summarised from North Wales Live's report · Updated 25 Oct, 11:27 · Archive

Savers often receive less interest on regular savings accounts than they expect because interest is calculated on money deposited gradually rather than as a lump sum.

Martin Lewis has highlighted a widespread misconception about savings accounts that leaves many savers disappointed with their returns. Speaking on his BBC podcast, he said he regularly receives frustrated messages from account holders who feel misled. Regular savings accounts offered by major high street banks such as Lloyds Bank, Santander and Nationwide Building Society advertise headline rates reaching up to 8 per cent. However, savers frequently find themselves receiving only around half the interest they anticipated.

The source of confusion lies in how interest is calculated. These accounts allow depositors to pay in a capped amount each month and earn a high interest rate, but interest accrues only on the sum available at any given time. Mr Lewis gave the example of an account paying 6 per cent with monthly deposits of £250. While savers might calculate 6 per cent on the full £3,000 annual deposit and expect £180 in interest, the actual return is lower because interest is calculated monthly on progressively larger balances. In the first month, only £300 has been deposited, so interest accrues at 6 per cent on that amount alone.

Read the report

• Martin Lewis addresses common misunderstanding about savings accountsSavers are frequently disappointed by their actual payouts despite headline interest ratesNorth Wales Live · 24 Oct, 19:00

In this story: Martin Lewis · BBC · Lloyds Bank · Santander · Nationwide Building Society

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