Rates have gone up seven consecutive times, but despite this banks have been slow to pass on the base rate rises to savers.
Some banks only passed on as little as 0.14 per cent, according to data collected by Moneyfacts, which looked at the changes in interest rates given to savers with easy access accounts.
At the end of September, the Bank of England increased the base rate by a further 0.5 percentage points to 2.25 per cent in a bid to cool inflation.
A further increase is expected when the BoE’s monetary policy committee meets again at the beginning of November.
But despite the fact this could be the eighth increase seen since December 2021, high street banks have not passed on the higher interest rate to their savers.
Boring Money’s chief executive, Holly Mackay said this is because banks know inertia is “more powerful than greed” when it comes to cash accounts.
“Banks are under no compulsion to match the base rate,” Mackay told FTAdviser.
“Many of us leave our savings in a current account. This is less problematic when interest rates are rock bottom, but at a time of rising base rates and inflation, it hurts."
Average saving rates on easy access, notice and ISA accounts
Date | No Notice £10K Gross | Notice £10K Gross | No Notice ISA £10K Gross | Notice ISA £10K Gross |
January 2022 | 0.2 | 0.56 | 0.27 | 0.37 |
February 2022 | 0.21 | 0.53 | 0.26 | 0.37 |
March 2022 | 0.25 | 0.55 | 0.3 | 0.38 |
April 2022 | 0.33 | 0.66 | 0.38 | 0.51 |
May 2022 | 0.39 | 0.78 | 0.46 | 0.64 |
June 2022 | 0.46 | 0.92 | 0.52 | 0.77 |
July 2022 | 0.59 | 1.07 | 0.65 | 0.93 |
August 2022 | 0.69 | 1.17 | 0.76 | 1.07 |
September 2022 | 0.85 | 1.41 | 0.92 | 1.21 |
October 2022 | 0.98 | 1.64 | 1.06 | 1.49 |
Source: Moneyfacts
But Mackay pointed out that it is not just banks “playing this game”, investment platforms have also been slow to raise rates.
“We can see that investment platforms have increasing amounts of cash as rattled investors sell out some positions.
“Thirteen per cent of assets on DIY investment platforms today are in cash – and most of this is getting less than 0.5 per cent interest, at a time when base rates are 2.25 per cent,” Mackay said.
Moneyfacts finance expert, Rachel Springall highlighted there are still easy access accounts out there paying less than the base rate, so it is imperative savers compare and switch, especially if they have not reviewed their accounts in the past couple of months.
“As interest rates continue to rise, it’s uncertain whether savers would be content to lock their cash away for more than a year, particularly if they feel more improvements could surface or if they need the reassurance of dipping into their savings pot,” Springall said.
“Spreading cash across both easy access accounts and short-term fixed accounts to secure a guaranteed return could be a wise move to get the best of both worlds,” she added.
A spokesperson for Aldermore Bank, the specialist lender which also offers personal and saving accounts told FTAdviser: “Big banks don’t tend to compete in the retail savings market and therefore do not tend to offer decent rates relative to either base rate or the challenger bank community, such as a bank like Aldermore.”
Aldermore believes this is because of differences in their funding models, a lack of regulatory oversight and customer inertia.
The spokesperson gave the example of low rate current accounts making up a large part of the bigger banks funding and the fact they make greater use of wholesale funding lines.
“The big banks are able to trade off the relative inertia of their customer base, which is linked to their ‘loyal’ current account relationship and distribution model, ie, branches. Indeed, they tend to argue that customers ‘value’ a face to face branch service over rate,” the Aldermore spokesperson said.
Between December and August of this year, Aldermore increased its double access rate by 0.95 per cent to 1.70 per cent and increased its easy access rate by 1.10 per cent to 1.60 per cent.
The spokesperson said: “Smaller banks and building societies typically have a greater reliance on the retail savings market given that they don’t usually offer current accounts and have less access to wholesale markets.
“Newer banks, who tend to lead the way on rates, don’t have large savings back books so can offer higher variable rates without suffering large additional interest costs to existing savings customers."
Regulation
They also highlighted a lack of regulatory oversight as being an issue.
“For example, the SEAR (Single Easy Access Rate) initiative that was proposed, then shelved, by the FCA would have provided regulatory and reputational impetus to encourage both customer switching and higher rates from providers. This was a missed opportunity in our view,” they said.
The Financial Conduct Authority first published a consultation paper setting out proposals to simplify and improve competition in the cash savings market by introducing a Single Easy Access Rate in January 2020, but stopped working on the project during the pandemic.
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 told FTAdviser: “Firms must be transparent and fair with the rates and products they provide to customers, for example by notifying them in good time of disadvantageous rate changes.
“We will always look at the options available to us to prevent significant harm to consumers, and our new consumer duty will make sure firms are putting their customers’ needs first.”
jane.matthews@ft.com
