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Millions of Brits are letting their savings languish in accounts paying paltry interest rates, and it could be costing them hundreds of pounds over the long term.

High street banks typically offer considerably lower interest rates on their easy-access savings accounts compared with digital banks and newer savings providers.

NatWest’s flexible saver offers a miserly interest rate of just 1% on any cash held up to £24,999, after which point it rises to 1.35%. The highest rate offered is 2.10% for holdings of £250,000 or more.

Barclays’ everyday saver also pays just 1% interest, but this applies on all balances over £1.

Yet, Santander recently launched a regular saver paying 8% interest, if you save up to £200 a month. If you saved the maximum of £200 a month into Santander’s account, you would have earned £104 after one year. But if you saved the same amount each month into NatWest’s or Barclays’ accounts paying 1% for one year, you would have earned just £13 in interest.

That means you’d have missed out on £91 in free cash - just for holding your money with a different bank.

Inflation vs interest rates

Not only is 1% much lower than the best rates on the market - it’s also well below the UK’s current inflation rate of 2.8%.

Inflation is a measurement of how fast prices rise over a certain time frame. If prices are rising faster than your money is growing, you are effectively losing money in real terms, making it incredibly important to ensure your cash is working hard for you.

New research by savings provider Moneybox found there are a total of 56.1 million savings accounts earning interest of just over 1%, meaning any money held in those accounts is being eroded by inflation as time goes on.

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Right now, you should be double checking you are earning at least 3% to stay ahead of inflation, but realistically - with the rate likely to rise this year - there’s no reason you shouldn’t make it 4% at a minimum given the rates on offer.

And high street banks aren’t the only ones getting away with offering awful rock-bottom rates.

NS&I - a national favourite or a mistake with your money?

There is more than £1.5bn sitting in NS&I ’s Investment Account earning just 2.05% interest, according to the latest figures.

The account used to pay just 1%, but NS&I increased the rate to 2.05% in April this year. Even so, that rate is still less than half what the top easy-access savings accounts on the market offer.

NS&I, which also operates popular Premium Bonds accounts - where each pound you save into the account is entered into a prize draw - offers a range of savings accounts and bonds, with most of its other accounts offer much better value.

You could forgo hundreds of pounds just for keeping your money in the wrong account within NS&I.

The top-paying one-year bond from NS&I currently offers 4.69% interest. If you saved £5,000 into this bond for one year, you would earn £234.50.

If you saved the same amount into the investment account paying 2.05% interest for the same timeframe, you would earn £102.50. That’s a difference of £132.

But there are other differences to note beyond the interest rate.

Fixed-rate accounts tend to pay higher rates than easy access savings accounts, but you may not be able to access your money for the fixed period - in the above case, for one year. Easy access accounts, of course, let you get your money when you need it.

Who has the best rates?

The best rates on the market tend to come from challenger banks - newer banking providers who don’t have the same brand recognition as big high street names.

For example, savings provider Tembo currently offers an interest rate of 4.55% for up to 12 months on its easy-access Home Saver account.

Elsewhere Chase offer 4.5% and Oxbury Bank offer 5.01% for new customers, including a bonus rate which lasts until Christmas.

Some savers may be concerned that banks they don’t recognise aren’t as safe as a trusted high street name, but authorised banks and building societies in the UK have to follow strict rules, and eligible deposits are protected by the Financial Services Compensation Scheme (FSCS).

Others - like Chase from the above examples - are part of bigger organisations, in this case JPMorgan.

Is your money safe with challengers?

There are simple ways to check if your money is protected. Check your provider is regulated by the Financial Conduct Authority or the Prudential Regulation Authority. It should say so on their website, but if you’re not sure, ask.

You should also check your provider is covered by the FSCS, as this means your money is protected in the event your provider goes bust.

The FSCS only covers up to £120,000 per person, per authorised firm, so try not to hold more than this with one provider.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Challenger banks and building societies offer some of the best returns on the savings market, and yet, many keep their pots with a high street bank or in a current account that earns little to no interest.

“Switching doesn’t take much effort, and it’s important to get into the habit of earning a rate that can outpace the eroding effects of inflation. The top savings deals pay more than 4% right now, but some of the biggest high street banks pay just 1%.”

You can compare best savings on comparison sites like Moneyfacts or Finder - or in regularly updated articles for different account types here on Independent Money.

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.