Millions of borrowers clueless about Interest Rates and their debt

More than a quarter of people are in the dark about interest rates and how much they pay, a new survey shows.

Some 2,000 people were questioned by polling firm Opinium for business consultancy Hargreaves Lansdownz

This shows that 27% of people don’t know what interest rate they’re getting on their savings; this rises to 31% of the so-called squeezed middle (aged 35-54), 35% of women, and 38% of renters.

Sarah Coles, head of personal finance at Hargreaves Lansdown, says: “The good news is all the talk about the Bank of England cutting rates over the past few months has focused people’s minds. It means the proportion who don’t know what they’re making has dropped from around a third six months ago to around a quarter today – so we’re paying more attention.

“However, there are still far too many people who don’t know where they stand, and as rates drop in the coming months, there’s a risk even more will lose track, and their savings rate will gradually be eroded.

“There’s a strong correlation between those people who tend to have less savings and those who don’t know what they’re making in interest.

“This includes women (at 35% compared to 19% of men), renters at 38% and people who are single after coming out of a relationship, at 36%. This may be because they don’t think they have enough savings to worry about whether they’re getting the best possible rate.”

Coles says the younger we are, the less likely we are to have significant savings, and yet only 23% of those aged 18 to 34 don't know how much interest they're making.

She comments: “It could be that this group see their lack of savings as a temporary situation, so they’re keen to make them work as hard as possible as they build their wealth. The other groups may find it more difficult to imagine a time when they’ll have more in the bank.

“The busier we are, the more likely we are to lose track too. Those aged 35 to 54 may well have caring responsibilities – either for their children or their parents or both. Juggling this with everything else means savings can fall through the cracks - which is one reason why 31% don't know what their savings are earning.”

And she adds: “Over the past two years, the amount of tax we’ve paid on savings has soared by more than two and a half times to £10.37 billion, so it’s vital to consider tax and use a cash ISA if there’s a risk you could end up with a tax bill on your savings.

“You also risk being unaware that your provider has cut your savings rate. At the moment, with the market expecting rates to fall in the coming months, we’ve seen some providers cut deals for existing customers.

“They will get in touch to let you know, but if you don’t know what you were making in the first place, you won’t know the significance of the cut, and you’re less likely to know whether you could make more elsewhere.”