Your IndustryJun 9 2023

Banks respond to MPs' questions on saving account rates

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Banks respond to MPs' questions on saving account rates
MPs have previously raised concerns that savers' interests were not properly being served as a result of banks and building societies not raising their savings rate in line with base rate rises(Chris Ratcliffe/Bloomberg)

Nationwide, TSB, Santander and Virgin Money have all responded to MPs’ questions over how they set the interest rate paid to their savers. 

Last month, MPs on the Treasury committee wrote to the four organisations questioning why easy access savings rates are much lower than the current Bank of England base rate. 

According to the Financial Conduct Authority, collectively, these banks and building society account for a quarter of all personal current accounts. 

They were contacted by MPs after it was shown earlier this year that the ‘big four’ banks - Barclays, HSBC, Lloyds and NatWest - offered between 0.5 and 0.6 per cent easy access savings rates. 

In May, this had increased to between 0.7 and 1.3 per cent. At the time, the Bank of England’s base rate stood at 4.25 per cent. 

Since then, the base rate has been increased to 4.5 per cent as the Bank of England continues to battle inflation. 

MPs raised concerns that the big banks were squeezing record profits from their loyal savers in a high interest rate environment. 

Treasury committee chairperson Harriett Baldwin said at the time: “Banks must do more to encourage saving.

“As a committee, we would like to know why savings rates offered by banks and building societies are so much lower than the current base rate, and whether banks tell their loyal customers better deals could be available. 

“We are concerned that the loyalty penalty may be particularly severe for elderly or vulnerable customers who may not be able to take advantage of higher rates available online,” Baldwin said. 

Responses

At the time of requesting the information from Nationwide, TSB, Santander and Virgin Money their easy access saver account rates stood at 1.25, 0.9, 0.7 and 0.25 per cent respectively. 

Responding to the MPs request, each of the four organisations pointed to the variety of different savings accounts they offered and noted the different rates available on each. 

Nationwide explained that it could offer more competitive rates on savings accounts with longer fixed terms. 

“Generally, the longer that deposits can be left, the higher the rate,” Debbie Crosbie, chief executive at Nationwide wrote.  

“With instant access funds, we can’t lend them so easily to mortgage borrowers, who generally seek fixed term lending. As a result, the market tends to offer higher rates for fixed term deposits because of the certainty and stability they provide,” she said. 

Likewise, Santander explained that in determining how increases in the base rate are passed on to its savers that the base rate is not the only factor it takes into account in its pricing decisions. 

Mike Regnier, chief executive of Santander, wrote: "All pricing and rate changes are agreed at our weekly pricing forum, chaired by our CFO, where decisions are subject to robust scrutiny from across the business.

“Since the base rate started rising, we have significantly increased the amount we have paid to our savers. It is also worth noting that 89 per cent of our loan book is on fixed term rates, and as such rises in the base rate don’t automatically translate into higher costs for customers - or higher income for us."

Virgin Money told MPs that in addition to the base rate, it considers its comparative market position when setting its savings rates. 

This it said, was to ensure it does not price products that risk either excess volumes that result in poor customer service outcomes, or move the bank outside of its targeted liquidity levels.

TSB explained its rationale behind its savings rate related decisions by stating that its business model is, put simply, "based on taking in deposits and then lending out that money" through mortgages and unsecured lending products such as personal loans. 

Robin Bulloch, chief executive of TSB, wrote: “The margin made on the difference between rates offered to savers and those charged to borrowers is used to run the operation, including compliance with regulation, and much of it is reinvested in our business to fund the maintenance and improvement of the services we provide to our customers."

jane.matthews@ft.com