The chair of the Treasury committee has written to the Financial Conduct Authority asking what it is doing to ensure banks are passing interest rises onto their customers, after a number of banks were criticised.
Harriett Baldwin wrote to the CEO of the City watchdog yesterday (March 21) highlighting how a number of banks have been offering savings rates significantly below the Bank of England’s base rate.
“We would welcome more information from the FCA on what work it is doing to ensure there is effective competition in the markets for savings and mortgage products,” she said, as well as asking what the regulator is doing to make sure banks are not relying on consumer inertia to allow savings interest rates to rise at a slower pace than mortgage interest rates.
“While consumers should continue to shop around for the best rates, the information we’ve received from the UK’s biggest high street banks demonstrates there is much more that can be done,” Baldwin said.
“We anticipate that the financial regulator will want to look into this issue in further detail, in particular whether the market is truly competitive and if retail banks are relying on customer inertia to keep savings rates low.”
Though they are falling, the average two and five-year fixed rate mortgages are currently at 5.3 per cent and 5.0 per cent respectively, according to Moneyfacts.
The Bank of England has raised the base rate of interest at every meeting over the past year
Source: BoE
Easy access savings accounts for clients of retail banks do not match these rates.
In early March, HSBC, Barclays, Lloyds and NatWest bank all offered less than 1 per cent for their easy access savings accounts, with the rates ranging between 0.55 per cent and 1.2 per cent.
Since the Treasury committee intervened, HSBC has increased its rate to 1.2 per cent, and NatWest has increased its rate to 1 per cent.
Roughly 20 per cent of these easy access accounts have more than £5,000 held, according to the committee.
Baldwin wrote to a number of retail banks earlier this month asking them to explain how they determine how increases in the bank rate are passed onto its savers, and why it is not passing on the full base rate of interest.
Banks saw big increases in profits last year as a result of the interest rate rises.
Barclays reported a 7 per cent profit increase for 2022, to £2.6bn, and its net interest margin (the difference between the rate Barclays receives from borrowers and what it pays savers) rose 34 basis points to 2.86.
Other banks saw higher profit rises, with NatWest Group seeing a 34 per cent increase on its 2022 profits, and Lloyds Banking Group posting a 17 per cent quarter-on-quarter rise in pre-tax profit for Q4 last year.
Baldwin questioned the FCA on its proposed reforms of the easy access cash savings market.
The new rules would have required all firms to set a single easy access rate across all easy access accounts after 12 months, however the work was halted due to the pandemic.
Baldwin asked if these reforms are no longer relevant, and if so, why.
It is understood that the FCA will continue to monitor the market and may revisit its priorities if significant harm to consumers is seen.
A spokesperson for the FCA said: "We welcome the committee’s interest in this area and we’ll reply in due course."
sally.hickey@ft.com
