Banks criticized for offering a ‘meager’ return on customers’ savings despite rising interest rates
Some savers have made ‘meager’ returns despite increases in the Bank of England’s key interest rates, according to Which?
The consumer group said savers have been sitting on rates of just 0.1 percent in recent months.
Some savers may be better off with challenger banks — smaller, more modern financial institutions adopting the long-standing status quo — or building societies, especially when it comes to direct access to deals, consumer group research suggested.
The Bank of England’s base rate is currently at 4.5 percent, following a series of increases to curb rampant inflation.
The Treasury Committee recently expressed its concerns about savings rates and has written to providers.
The Bank of England’s key interest rate is currently at 4.5 percent, following a series of hikes in a bid to curb rampant inflation
The Financial Conduct Authority’s consumer duty due to be introduced in July will encourage companies to give customers a fair price, and which ones? said it wants swift action if companies fall short.
Jenny Ross, editor of Which? Money, said: “With millions of consumers still feeling the impact of an unrelenting cost-of-living crisis, getting better returns on savings accounts has become even more important.”
She added: “Our advice is simple: if you’re not happy with the rates you’re currently receiving, now is the time to switch.”
Several providers have recently announced new savings deals, such as First Direct, which is launching a one-year, fixed-rate savings account starting May 30 with a rate of 4.60 percent AER (annual equivalent rate).
The deal is only available to First Direct customers with a 1st current account. The bank is offering £175 in cash to switch to its current account, subject to conditions.
Last Friday, Shawbrook launched a one-year fixed rate bond with a payout of 5.06 percent AER and a one-year fixed rate Isa at 4.43 percent AER.
A blog on the UK Finance website by Eric Leenders, managing director of personal finance at UK Finance, says: ‘Banks consider a number of factors when determining the interest rate paid to depositors or by borrowers.
Many savers are sitting on interest rates as low as 0.1 per cent, despite Bank of England rate hikes under Governor Andrew Bailey (pictured)
The Bank of England’s official ‘bank rate’ is only one factor. Other factors include the cost of raising funds, both in the retail and wholesale markets, capital and liquidity requirements, customer and regulatory expectations, and the fact that not all borrowers will repay the loans in full.
There is a wide variety of cash savings accounts on the market and the interest rates offered are set by individual banks that compete with each other. The degree of competition in the market is an important factor, in addition to the nature of a bank’s own business model and customer strategy.’
A UK Finance spokesperson said: ‘The rates an individual company offers on its savings products are determined by a number of different factors, not just the Bank of England bank rate.
‘It is important whether someone wants immediate access or can deposit their money for a longer period of time.
While the interest rates on an instant account may be lower, they offer customers the flexibility to access their money when they need it. The market is competitive with a range of fixed and variable rate products available.
“We would always encourage customers to shop around for the product and rate that fits their needs.”