Banks could be FORCED to pay savers more interest under new rules

Britain’s financial watchdog is threatening to crack down on the banks and their scam savings rates.

The Financial Conduct Authority (FCA) has said it will use new, stricter consumer protection powers to ensure banks pass rate hikes on to depositors.

This will come when it begins to phase in its new ‘consumer tax rules’ starting July 31, giving it more powers to ensure the companies it regulates are acting in the best interests of their customers.

A fifth of all easily accessible savings (£256 billion) are in accounts that pay no interest at all, according to Coventry Building Society’s analysis of the latest Bank of England data.

This means people could lose out on hundreds of pounds during a cost-of-living crisis; a problem the FCA hopes to address.

Since December 2021, the Bank of England has raised its base rate eleven times from a low of 0.1 percent to 4.25 percent.

Despite being at the highest level for more than 14 years, many banks have not fully passed on the increase to their customers.

> Can you make your savings more profitable? View all the best rates here

When the base rate started to climb from its December 2021 low of 0.1 percent, the average easy-to-access rate paid just 0.21 percent, according to Moneyfacts.

It has now risen to 2.01 percent, which means that an average of 1.8 percentage points of interest has been passed on to the average saver. In the same period, however, the base interest rate increased by 4.15 percentage points.

This means that on average less than half of the base rate hikes over the past 12 months have been passed on to savers.

Still on the way up: The Bank of England made the decision last month to increase the number of cases from 4 per cent to 4.25 per cent

Some of the larger banks have been most to blame for ripping off their savings customers, and many continued to offer standard, easy-to-access savings rates below 1 percent despite the increases in base rates.

In fact, according to This is Money analysis, major banks made £39.9bn from the widening gap between low interest rates on savings and the high interest rates charged to mortgage and borrowers.

We revealed that the largest banks made an extra £7 billion last year from net interest margins – the difference between the rates they pay to savers and those they charge to borrowers.

Banks state that accounts with a lower interest rate are mainly used by customers with less savings.

However, recent evidence has shown that at Lloyds and NatWest a fifth of such accounts contain more than £5,000.

Lloyds had about £120bn in overdraft deposits in December. NatWest had £92.5 billion, with 2.8 million bills in excess of £5,000.

Nikhil Rathi, chief executive at the FCA said the watchdog is closely watching how companies implement rate changes, and that the consumer duty would mark a step change in how the FCA can ensure companies deliver the best results to customers.

In a letter to the parliament’s Treasury Select Committee, Rathi said: “We have made it clear that companies need to be able to justify and explain the reason for the speed and extent to which they are making changes to their various savings rates.”

In January 2020, the FCA consulted on whether to introduce a single ‘easily accessible’ cash savings rate to stop any ‘loyalty penalty’ in cash savings markets where long-time customers often get worse deals than new customers. However, this work was put on hold due to the pandemic and ultra-low rates.

“Given the rising interest rates and the performance of companies in passing on base rates, we have considered whether we should restart this work,” Rathi said.

“However, we believe that the Consumer Tax gives us more flexibility to respond to market developments, rather than having to introduce detailed and prescriptive rules.”

Rathi added that the FCA remains open to revisiting the idea of ​​an easy access rate, among other interventions, if it continues to see depositors penalized for loyalty.