Savers have moved £22billion out of the big five banks. Here’s why you should too 

Tomorrow we will probably see interest rates rise again.

If I’m reading the runes correctly, they will rise from 4.25% to 4.5% as the Bank of England scrambles to bring down inflation, which is currently running wild at 10.1%.

Interest rates, investment bank Goldman Sachs says, will likely have to keep rising until at least the summer — with base rates perhaps peaking at 5 percent — before inflation starts to fall towards 2 percent.

If the rise in base rates comes tomorrow (and I’ll bet my impressive stamp collection does) it should result in higher rates for savers and borrowers alike, although as we’ve seen since base rates first started rising in December 2021 , it’s not always that easy.

Over the past 16 months, the big banks – and to a lesser extent the country’s army of building societies – have used the backdrop of rising interest rates to improve their margins and boost their profits.

In banking parlance, they have made a profit by widening the gap between the interest rates they charge borrowers and the rates they pay to savers (the net interest margin). In blunt consumer language: they have generously fooled savers by not fully passing on the interest rate hikes.

The extent of this shaft has become clear to all in recent weeks as the major High Street banks – Barclays, HSBC, Lloyds, NatWest and Santander – have reported their results for the first quarter of this year.

Analysis by Atom Bank shows that these five giant banks posted a combined pre-tax profit of just over £5 billion in the first three months of this year – a 43 per cent increase on the same period last year.

Much of this profit jump, says Atom, is due to the banks increasing their interest margins – by between 0.23 percent (Santander) and 0.57 percent (HSBC). The banks’ staunchest depositors, says Atom boss Mark Mullen, have been grossly “exploited.”

Someone with £10,000 tucked away in an instantly accessible Barclays Everyday Saver account is currently receiving annual interest at 0.7 per cent – £70 per annum.

A lot more than the £1 annual interest they got back in December 2021 when the base rate was 0.1 per cent, but significantly less than they could get if they transferred their money to a top paying instant access account from fintech bank Chip Financial , with interest at 3.71 per cent (£371 per annum).

The banks, however, are not entirely happy. A range of statistics indicate that savers are now voting with their feet.

Atom’s analysis of the big five banks shows they have seen more than £22 billion in deposits coming in year on year, with Lloyds and HSBC suffering the largest outflows.

The most recent statistics from the Bank of England confirm these figures. In March, customers raised £4.8bn in cash from banks and building societies – the biggest monthly exodus since registration began 26 years ago.

Withdrawals from instant access accounts — the accounts where banks offer the most generous savings rates — were ferocious.

“You have to go back to the dark days of the 2007-2008 financial crisis to see comparable levels of withdrawals,” said Laith Khalaf, chief investment analysis at asset manager AJ Bell.

“Then people lined up outside Northern Rock branches, desperate for their money as the bank teetered on the brink.”

In contrast to the outflow from banks and building societies in March this year, bags of money poured into tax-friendly cash Isas (£5.9bn) due to higher interest rates and the approaching end of the tax year (April 5). .

Money also poured into products offered by National Savings & Investments (£3.5bn), the government-backed savings giant.

So what does all this tell us?

First, that savers are getting smarter. The media helped. For example, Money Mail’s Sunday sister section, Wealth & Personal Finance, warned many savers through its Give Savers A Rate Rise campaign about the bad deal they were getting from their banks, leading them to hunt for more attractive alternatives.

The powerful Treasury Select Committee, chaired by the formidable Harriett Baldwin, has also done its part. Earlier this year, it brought in the bosses of the big banks and asked them to defend the bad rates they offer many savers.

Baldwin then fired a shot across the regulator’s bow, the Financial Conduct Authority (FCA), asking what it was doing to hold the banks accountable.

Much of the noise Baldwin created has trickled down to savers, leading them to look for better providers.

Second, there is no doubt that the rumble of a banking crisis similar to that of 2008 has upset some savers.

While most of the turmoil has so far been confined to regional banks in the US – with the demise of Silicon Valley Bank in March and, more recently, First Republic Bank – the rescue of Credit Suisse by Swiss counterpart UBS brought the crisis closer. At home.

Some UK banking customers have responded by transferring chunks of their money to other providers, just in case.

It explains why NS&I is currently awash in cash as depositors try to protect their savings against the possibility of the banking crisis spilling onto our shores (weirder things have happened).

Unlike the banks, where £85,000 of an individual depositor’s deposits are protected by the Financial Services Compensation Scheme (FSCS), all money in NS&I products is guaranteed by the government. Solid as a rock.

Perhaps the Bank of England will have to review the FSCS in the coming weeks and increase protection for savers to allay their fears.

In the meantime, savers should continue to act smart: protect your savings against tax (by using Cash Isas); eschew low-paying accounts with instant access; shop around for the best rates (via thisismoney.co.uk/money/saving); save no more than £85,000 with a bank or building society; and see what NS&I has to offer (Premium Bonds), despite potential customer service issues.

Jeff.prestridge@dailymail.co.uk