We don’t have as much financial knowledge as we think and one in three doesn’t know how a savings account works.

One in three people who consider themselves financially literate don’t know how a savings account works, a survey by the Current Account Switch Service reveals.

About 78 percent of Britons consider themselves financially literate, according to Cass’s survey of 4,000 people.

But of them, 29 percent don’t know how a savings account works.

Similarly, 54 percent of people say they understand financial jargon well, but seven in 10 of this group also don’t know how a savings account works.

Respondents were asked to define what a savings account was with five options including “I don’t know.”

The other options were an Isa, a deposit account with a bank that pays interest, an interest-free everyday transaction account or a loan product offered by banks.

Of the people who said they are financially literate, one-fifth run out of money each month. This figure rises to 41 percent for those who do not consider themselves financially literate.

Even among those who feel secure in their finances, more than a quarter still run out of money every two months.

More than a quarter of people save regularly with a rainy day plan and only 6 percent don’t save at all.

There is strong demand for more support for personal finance education during school years – 86 per cent agree it should be in the national curriculum.

Only 32 per cent of those who consider themselves financially literate could correctly calculate compound interest on £1,000 invested at an annual rate of 5 per cent.

While 29 per cent couldn’t define what a savings account is and 35 per cent had difficulty explaining what an Isa is.

Only 57 percent of people ages 18 to 24 feel financially literate, compared to 88 percent of people ages 55 and older.

Men also feel more confident than women when it comes to managing their finances: 35 percent of men report that they feel confident managing their finances, compared to 25 percent of women.

John Dentry, of Pay.UK, said: “These findings highlight the gap between perceived financial literacy and practical knowledge, as well as the strong desire for greater financial education.”