NatWest, others to be queried over savings rates

Top executives from Lloyds, HSBC, NatWest, and Barclays are set to be interrogated by the Financial Conduct Authority (FCA) over concerns surrounding meagre interest rates on savings accounts. While mortgage costs have surged due to interest rate hikes, savings rates have failed to keep pace. This discrepancy has raised worries of excessive profits for banks, prompting the FCA to summon bank bosses for questioning later today.

Chancellor Jeremy Hunt has expressed his unwavering support for the regulatory investigation, emphasising the need to address the issue promptly. Mr. Hunt criticised banks for their sluggishness in passing on interest rate increases to savers, stating that the matter requires urgent resolution, particularly for individuals with instant access accounts.

Insiders have revealed that the FCA intends to grill the prominent quartet on their savings rates during the meeting. According to an unnamed source cited in the Financial Times, the regulator believes that banks could provide customers with greater value. The latest figures unveiled today indicate that the average two-year fixed mortgage rate stands at 6.52%, whereas the average rate for easy access savings accounts—based on £10,000 of savings—is a mere 2.49%. The widening gap of 4.03 percentage points represents an almost twofold increase from December 2021 (2.19 percentage points), coinciding with the Bank of England’s initial interest rate hikes aimed at curbing soaring consumer prices.

Philip Augar, former non-executive director of TSB, likened the upcoming meeting to “the early stages of a dance” between the banks and the regulator in an interview with the BBC’s Today program. Augar noted that heightened bank profits have rendered the matter highly sensitive, expecting banks, in general, to adopt an apologetic stance. Establishing a harmonious relationship with the regulator and retaining government favour are of paramount importance, he added. Augar cautioned that the banks would be apprehensive about potential compulsory measures, such as a special tax on banking profits or increased regulatory oversight. He suggested that the meeting might yield a commitment from the banks to enhance communication with savers regarding available options.

The Bank of England has been raising interest rates to discourage borrowing and encourage saving, with the goal of curbing spending and mitigating price inflation. The current base rate, which influences mortgage and savings rates set by major banks, stands at 5%. According to analysis by banking giant JP Morgan, interest rates in the UK could potentially reach 5.75% by November and remain elevated for a considerable period. However, JP Morgan warned that in a worst-case scenario, if inflation fails to subside, a base rate as high as 7% “might be required.”

While interest rate hikes generally boost bank profits, lenders contend that savers have access to numerous competitive deals. UK Finance, the banking sector’s trade body, previously emphasised that savings and mortgage rates are not directly correlated, meaning they fluctuate independently and at different intervals. The BBC’s request for comment was met with silence from Lloyds and NatWest, whereas Barclays responded by stating that it regularly reviews its savings rates. HSBC acknowledged having increased its savings rates over a dozen times since the beginning of last year.