Do banks take us for fools with low savings rates, asks SAM BARKER

Big banks must think depositors are idiots – or at least ignorant.

There can be no other excuse to penalize savers with low, easily accessible savings account rates, while at the same time driving up costs for mortgage and loan customers.

Bank customers are currently stuck paying rates of 3.95 to 6 percent on most mortgages, while savers with easy access to big banking deals usually earn pitiful rates of 1 percent or less.

That’s because, while the Bank of England is making a series of hikes in its base rate, which are factored into finance deals, banks are passing the increases on loans more than savings rates.

The widening gap between low savings rates and high borrowing costs means one thing: more money for the banks. And that money comes straight out of their customers’ pockets.

In recent weeks, all major banks have released their financial results for 2022, showing that they are increasingly making profits from something called the ‘net interest margin’.

In plain English, net interest margin is the money banks make from a combination of savings interest paid and interest on loans charged to customers, with a few other bits thrown in.

Together, HSBC UK, Barclays, Santander, Lloyds Banking Group (including Lloyds Bank, Halifax and Royal Bank of Scotland) and NatWest Group (including NatWest and Royal Bank of Scotland) earned a cool £39.9 billion in 2022.

Now it is important for a bank to make some money on its net interest margin, otherwise it would indeed be very badly managed – and even collapse.

But to give context, that figure of £39.9bn has risen by £7bn in just a year – or an average of an extra £106 for every person living in the UK. And the banks predict that this figure will only rise in 2023.

The great savings deal ‘switcheroo’

For bank customers, that’s bad enough — but it gets worse.

Not content with simply extorting their customers, banks want to treat them like idiots too.

I’ll give you an example. The most common savings deal in the UK is the easy access account. As the name suggests, it allows you to easily deposit and withdraw money, in exchange for a relatively low interest rate compared to deals such as fixed rate bonds.

So when base rates went up, easy-access savers were delighted, thinking their savings rates would rise as well. And they did – just not for easily accessible accounts at the big banks.

Instead, major banks pulled a switcheroo and turned their attention to another savings deal: the common saver.

Regular savers, as the name suggests, pay interest in exchange for consumers depositing cash in installments. But most will lower interest rates if cash is withdrawn before the term expires – normally a 12-month period.

Bosses of several major banks were recently brought in by MPs to justify why easily accessible savings rates were so low and mortgage rates relatively high.

What the bank bosses said was, amazingly, depositors don’t want better easy access rates. Instead, they want better regular savings rates and are encouraged to develop a habit of saving by taking advantage of these deals.

Of course, there’s also nothing stopping the big banks from raising rates on easily accessible accounts AND regular savings deals.

Now I love regular savings deals – I have one myself. They are a valuable part of the savings world and I applaud any financial company that offers them.

And in a sense, the big banks are right. We have a poor record of saving as a country – apart from tight budgets from the cost of living crisis. Perhaps a little encouragement to save isn’t a bad thing.

This is just one small problem: savers aren’t too keen on regular savings deals.

Or at least, This is Money readers are not. A poll of our loyal readers found that 94 percent want better easy access rates, while only 6 percent opt ​​for more generous regular savings deals.

Bank bosses may be telling the truth that their customers are clamoring for better rates for regular depositors. We’ll never know since the lenders never revealed who these mysterious clients with their mysterious requests actually are.

They’re also keeping quiet about whether more customers are taking out more savings deals as a result of this big push, because the banks wouldn’t provide a breakdown if This is Money asked them to.

Playing the devil’s advocate for a bit, Bank of England figures may show an increase in people taking out regular depositors, but this is hard to work out. The problem is the Bank’s way of capturing numbers on savings deals, putting them into two broad jars: products that allow quick access to cash, and products that don’t.

Regular savings deals fall into the last pot, which the Bank calls “term deposits.” To be fair to big banks, official figures show that customers deposited an additional £6.9bn in term deposits by December 2022, the most recent figures available.

But term deposits also include products like fixed rate bonds, which are much more popular than regular savings deals, so it’s hard to really know what money is going where.

Do you want a good savings rate? Forget the big boys

All of this boils down to one thing: if you want half-decent interest rates from an easily accessible bank account, you can officially forget about it.

Holding significant sums of cash in easily accessible large bank accounts is nothing more than masochistic at this point if you have any other option.

Fortunately, the other options look reasonable. Savers who want a good return on their readily available cash account should consider the best buy deals from other savings firms, such as Chip, which pays 3.15 percent interest, or Shawbrook, which pays 3.06 percent. Both deals are protected by the Financial Services Compensation Scheme, meaning your money is safe up to a level of £85,000 per company in the event it goes bankrupt.

Or big banks could listen to This is Money readers – many of whom have been lifelong loyal customers – stop treating them like idiots and pay a fair rate for their favorite savings deals.

In the meantime, check out what you could get in our independent best savings rate tables and vote with your feet.