The banking sector is under pressure to be more generous with interest rates on savings accounts, which is negative for their profit margins.

In February, an influential parliamentary committee opened an inquiry into why the interest rates paid on easy-access savings accounts by the ‘big four’ UK high-street banks – Barclays (BARC), HSBC (HSBA), Lloyds (LLOY) and NatWest (NWG) – were so much lower than the Bank of England  base rate.

At the time, the big banks were offering between 0.5% and 0.65% on easy-access savings accounts compared with a base rate of 4%. Today, they are still only offering between 0.7% and 1.35%, while the Bank of England base rate is 4.5%.

Last week, the cross-party Treasury Committee delivered its verdict, blasting the ‘big four’ – and the four ‘scale challengers’, which include Virgin Money (VMUK), who account for a quarter of all personal current accounts – for charging what it called a ‘loyalty penalty’ on their customers, ‘especially elderly and vulnerable customers who may still rely on high street bank branches’.

‘With the Bank of England confirming the pass-through of base rate increases to easy access savings accounts has been unusually weak, it’s clearer than ever that the nation’s biggest banks need to up their game and encourage saving,’ declared chair Harriett Baldwin MP.

‘While other products are available to those who shop around, the measly easy-access rates on offer lead us to conclude that loyal customers are being squeezed to bolster bank profit margins.’

Jenny Ross, editor of Which? Money, also weighed in: ‘Our research has shown that high street banks have been short-changing savers by paying unjustifiably low rates for years – and MPs are right to hold them to account for this.

‘The introduction of the FCA’s (Financial Conduct Authority) Consumer Duty must mean tough action against firms who continue to offer such meagre rates.’

Whether the banks respond and increase their deposit rates we will have to see, but there is no question they have benefited enormously from the rise in base rates over the past year as their net interest margins have demonstrated.

Also, whether the Treasury Committee has the power – or even the right – to intervene in who offers what rate on UK bank deposits is debatable as it is not a regulatory body.

However, it is probably worth noting that while rates on easy access accounts have risen slowly, they have risen by more on ‘time deposits’ as the big banks attempt to lock in savings, resulting in a significant shift in deposit volumes out of instant access accounts over the last six months, according to the Bank of England’s latest Monetary Policy Report.

‹ Previous2023-06-15Next ›