Banking giants continue to “shortchange” savers when it comes to paying competitive interest rates, according to analysis by campaign group Which?.
This is despite repeated warnings from the Financial Conduct Authority (FCA) and MPs to level the playing field for savers.
Its findings come nearly a year after the FCA issued a 14-point plan that put big banks on notice for their behaviour.
In December, YourMoney.com reported that the FCA had seen “some indications” of a more competitive cash savings market emerging but, at the time, high street banks’ savings rates were still being beaten.
And today’s data from Which? suggests that very little appears to have changed since then.
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Analysis of savings accounts
Savings rates between January and June 2024 were examined by the consumer champion on six account types: instant-access savings accounts and ISAs, one-year fixed rate savings accounts and ISAs, and five-year fixed rate savings accounts and ISAs.
It found that the savings rate gap between traditional high street banks and challenger banks and building societies was most obvious with instant-access savings accounts. In January, the major banks were averaging only 1.9% on these, whereas building societies were averaging 2.9% and challenger banks were averaging 3.3%.
By June, the average rate for major banks had fallen to 1.6%, while rates for challenger banks and building societies were stable. Lloyds Bank ranked the worst of the major banks for instant-access accounts in June and third-worst overall, with a rate of only 1.4% on its instant-access account.
Little improvement from the high street in July
The results from July are little better – Lloyds had not improved from 1.4% when Which? checked again this month. Other major brands were only slightly better, with Halifax offering 1.5%, TSB 1.5%, Barclays 1.65%, Santander 1.7% and Co-operative Bank 1.81%. HSBC came out on ‘top’ with its rate of 1.98%.
But this was still far behind what the challenger banks were offering – Cynergy Bank had a rate of 4.94% in July, which was the highest instant-access rate on the market.
Which? also compared providers’ instant-access accounts each day between 1 January and 3 June. The consumer champion found that Lloyds ranked the worst out of any of the major banks over this period. It was also one of the worst overall, averaging 90th out of an average field size of 92.
There was hope on the horizon, however, in the form of table-topping rates from some high street players. The Ulster Bank Loyalty Saver offers 5.2% currently, and Santander also offered this same rate earlier in the year. However, major banks’ high-rate savings accounts are often only available to their current account holders.
On the longer-term savings products, not many high street banks offer them. Halifax was the only one offering a five-year fixed rate account to new customers at the start of June, and its 3.8% rate is significantly less than the market-leading ones.
At the moment, the market’s best one-year fixed rate is offered by Union Bank of India at 5.4%. And Birmingham Bank reigns in the five-year fixed savings category with its rate of 4.61%.
‘Completely unacceptable’
In March 2023, MPs from the Treasury Select Committee delivered a decisive verdict on the low savings rates provided by the UK’s largest banks. The FCA issued a 14-point action plan in July of the same year that warned banks that such behaviour would no longer be tolerated. The next review will be published soon.
The FCA’s plan requires the providers that are offering the lowest rates to justify how this provides fair value to customers and threatens robust action for the banks who cannot do so. The regulator has therefore ordered nine companies to justify their instant-access rates.
Sam Richardson, deputy editor of Which? Money, said: “It is completely unacceptable that big banks continue to shortchange savers despite repeated warnings from Which?, MPs and the regulator.
“As savers face the prospect of base rate cuts, banks will likely be quick to implement any reductions, yet our research shows they have dragged their heels in responding to calls for better rates.
“In its upcoming review, the regulator must take decisive action against firms that have failed to provide fair value, leaving them in no doubt that they will intervene against any future unfair practices.”
