(Bloomberg) -- Britain’s high street banks are taking advantage of savers by failing to pass on interest-rate increases to instant access deposits despite cranking up the cost of mortgages, the Treasury committee said.
On Thursday, the panel described the rates on offer as “measly” and said that lenders were squeezing “loyal customers to bolster profit margins.” Consumer rights champion Which? said big banks are shortchanging savers by hundreds of pounds every year.
Around 60% of household deposits are in instant access accounts, according to the Bank of England. Since December 2021, those savings rates have risen from 0.1% to 1.41%, BOE data through April shows. Over the same period, interest rates have risen 4.15 percentage points, while the average borrowing cost on a new two-year fixed mortgage rate has climbed to 4.7% from 1.5%.
“It’s clearer than ever that the nation’s biggest banks need to up their game,” said Harriett Baldwin, chair of the cross-party Treasury committee. “We remain concerned that the loyalty penalty is especially prominent for elderly and vulnerable customers.”
As interest rates soar on seemingly everything except deposits, banks are scoring big profits on the widening gap between what they charge borrowers and pay to savers. That’s drawn the ire of politicians from London to Seoul at a time when rampant inflation is stoking cost-of-living crises and forcing central banks to constrict economic growth.
Jenny Ross, editor of Which? Money, has called on the Financial Conduct Authority to take “tough action against firms who continue to offer such meagre rates.”
However, the backlash appears to be gaining little traction in government or at the Bank of England. Last month, the central bank argued that keeping instant access deposit rates far lower than fixed-term savings rates was good for financial stability.
Governor Andrew Bailey told reporters in May that the arrangement was “sensible,” given what happened at the local unit of Silicon Valley Bank, which lost almost a third of its deposits in one day in the fastest bank run in British history.
While rates on instant access deposits have barely moved, banks have been relatively more generous on longer-term, savings products that cannot be withdrawn immediately.
Locking in savings is good for financial stability because it lowers the risk of run on deposits.
Rates on two-year fixed savings accounts have increased on average by 3.6 percentage points since late 2021, the BOE said last month. As a result, there has been a big switch from instant access to time deposits, it added.
Bailey said with “my bank regulator hat on and financial stability hat on …you’d probably understand why that’s a sensible thing to do.” Rather than criticize the banks, he urged people to “shop around” for better rates than what is available for instant access savings.
Asked about the plight of savers earlier this week, Prime Minister Rishi Sunak’s spokesman was similarly sanguine.
“We would of course want banks to do whatever they can to support hard-hit people at times like these,” he said. “It is not for me to say what the appropriate rate is. It is for them and they are regulated in the normal way.”
In written correspondence to the committee, several banks said the pricing structure for instant access deposits was different from fixed-term deposits, where rates are more ample.
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