Bank execs queried over low savings rates

Top executives from major British banks have been called to meet with the UK’s financial watchdog to address concerns surrounding the persistently low interest rates on savings accounts. While the recent surge in interest rates has resulted in significant increases in mortgage costs, savings rates have not risen at a corresponding pace, prompting the Financial Conduct Authority (FCA) to seek clarification from the banking industry.

Chancellor Jeremy Hunt has acknowledged the seriousness of the issue, particularly given the challenging economic conditions that have led to soaring living costs for many households. In response to the mounting pressure, the heads of Lloyds, HSBC, NatWest, and Barclays banks are scheduled to hold discussions with the FCA on Thursday.

The FCA’s agenda for the meeting includes raising questions about the banks’ savings rates and their communication strategies with customers. This meeting comes as the Bank of England has been gradually increasing interest rates in an attempt to tackle surging inflation rates. The current base rate, which directly impacts mortgage and savings rates, now stands at 5%, a significant increase from its near-zero level just 18 months ago.

The central bank’s strategy aims to discourage excessive borrowing and encourage saving by making it more costly to borrow money while providing better incentives for savers. However, the reality is that average mortgage rates have skyrocketed above 6% in recent weeks, while returns on savings and current accounts have risen much less dramatically.

For instance, the average rate for a two-year mortgage deal reached 6.47%, whereas the average easy access savings rate stood at only 2.45%. This substantial gap of 4.02 percentage points is a cause for concern, as it highlights the limited benefit for savers during this period of increased interest rates.

Financial experts have cautioned that failing to keep savings rates in line with inflation effectively erodes the value of people’s savings over time. This has been a persistent problem since the aftermath of the 2008 financial crisis, with major High Street banks often dominating the market. While some challenger banks have started encouraging customers to explore other options, the prevalence of account switching remains low.

Harriett Baldwin, Chair of the Treasury Select Committee, expressed her concerns about the issue, particularly with regards to older customers who may face difficulties accessing internet banking and switching accounts. The committee has been actively pressing banks to address this matter fairly and promptly, to ensure customers are not left at a disadvantage.

Banks, on the other hand, argue that savers have access to various competitive deals, and UK Finance, the trade body for the banking sector, has emphasised that savings and mortgage rates do not always move in tandem.

Nevertheless, the Chancellor has raised concerns that banks are slow in passing on interest rate increases to savers and has personally addressed the matter with the banks’ chief executives. To assess the overall support for savers in the cash savings market, the FCA plans to release a report by the end of the month, which could shed further light on the situation and potentially lead to measures to ensure a fairer outcome for savers.