The UK’s chief financial regulator has warned that millions of loyal customers of high-street banks earning low interest on their savings are likely to have a huge impact as interest rates surge.
The Financial Conduct Authority criticized several banks for being frugal with their savings rate hikes and issued a warning that “onerous interventions” would be taken into consideration if it were determined that its concerns were not being adequately addressed.
The base rate of the official Bank of England is 4.25% after 11 successive increases; however, the interest offered by some banks is way behind.
In February, members of the Treasury Committee questioned the heads of the four biggest UK banks, Barclays, HSBC, Lloyds, and NatWest, about this. On Thursday, the committee’s chair, Harriett Baldwin, stated: “The regulator has now given us official confirmation that the UK’s biggest banks are profiting from interest rate rises and that loyal savers are being increasingly harmed.”
Accounts with instant access have received a lot of attention. The Santander Everyday Saver provides 0.7% interest, whereas the Barclays Everyday Saver only gives 0.65%. If a saver doesn’t have £25,000 or more on their account, Lloyds’ Easy Saver only offers 0.65%.
Other accounts offer even lower rates of return: Virgin Money’s Everyday Saver only pays 0.25%.
Last month, MPs on the Treasury committee stated: “It is difficult to avoid the conclusion that our biggest banks are taking advantage of their most loyal customers to increase profits and CEO pay.”
In a letter addressed to the committee, the FCA’s chief executive, Nikhil Rathi, revealed that it was common practice for financial institutions to give new savers greater interest rates while leaving current clients with less advantageous terms.
He further stated that the regulator noticed evidence of this practice during work it carried out in 2020, adding further: “We expect that the harm from this practice (and the loyalty penalty faced by longstanding customers) will have increased as the base rate has risen.”
The FCA’s impending “consumer duty,” which will be in effect starting on July 31, will make sure that financial institutions, including banks, insurers, and investment firms, are focused on providing “good outcomes” for clients, according to Rahti. For all types of savers, there will be an emphasis on “the fairness of pricing,” which will put some of the present norms to the test and necessitate “a significant cultural shift,” he noted.
The UK’s multibillion-pound savings market is protected against quick access accounts by the FCA thanks to measures adopted to ensure banks did not rely on customer inertia. The FCA was also challenged by the MPs to explain why savings interest rates were kept low.
Rathi stated that it had been monitoring this, further adding: “We have challenged and sought further information from some outlier firms that had made relatively small increases to their variable rate savings products in 2022 and where we saw a material time lag in pass-through to savings products relative to mortgages.”
In the past, the regulator considered implementing a “single easy access rate” for all UK instant access savings accounts. According to Rathi, the FCA was open to revisiting this idea or considering other, “more onerous interventions” if it later determined that the potential “loyalty penalty” harms it identified had “not been adequately mitigated.”
Baldwin stated that her committee would be watching to see if companies were “continuing to squeeze profits from their loyal savings customers” when banks released their first-quarter results in the next few weeks.
- Published By Team Timeswire