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More need for personal loans with poor interest savings

26 October 2004

Most savers earn such poor interest on their accounts that they lose money and often have difficulty understanding how savings work, according to AA Savings.

The AA found that over three-quarters of those with a savings account did not know what AER - the term used to express savings interest rates - stands for.

When told it stands for Annual Equivalent Rate, the amount of interest an account will earn over a year, more than half were unable to work out how much £100 would earn in a year, if it was in an account earning three per cent AER.

The youngest age group, 18 to 24, were 20 per cent less likely than average to get the calculation right.

Meanwhile, a significant minority of adults (six per cent) thought three per cent interest would earn £30 on their £100 investment and more than one in 10 young people (11 per cent) thought that this would be their return.

"This survey shows an alarming lack of financial literacy among savers and it seems to be particularly true of young people," said Lloyd East, director of AA Savings.

"Plain language and a straightforward account are vital if savers are to make informed choices that will give them the best returns," he added.