Under fire big banks defend their paltry savings rates
Some of the UK’s biggest banks have been forced to explain to the Treasury committee why, when interest rates rise, they appear to keep savings rates low while hiking mortgage rates.
Last month, the Treasury committee questioned how the top four retail banks determine what proportion of interest rate rises to pass on to their savings customers, and whether chief executive remuneration is linked to profits from their savings businesses.
At the time the four banks – Natwest, Lloyds, HSBC and Barclays – all paid less than 1% on their easy access savings accounts.
The Treasury has now received written responses from the banks and has published them today.
What do the banks say?
Ian Stuart, CEO of HSBC, said the bank needed to “make a spread, or margin, between the rates paid on deposits and the rates charged on lending” to cover the bank’s running costs and pay dividends to shareholders.
The bank refused to disclose revenue data from different types of savings accounts, saying the information was “commercially sensitive”.
HSBC has increased its easy access savings rate to 1.2% since receiving the letter from the Treasury.
Alison Rose, group chief executive at NatWest, said the bank considered factors “such as funding and liquidity requirements of the bank, as well as competitor rates and the other deposit accounts we make available to our customers” when setting interest rates.
Rose pointed out that NatWest’s Flexible Saver accounts pay rates from 1% to 2% , while fixed rate accounts pay up to 4.1%.
NatWest has increased its easy access savings rate to 1% since receiving the letter from the Treasury in February.
Matt Hammerstein, CEO of Barclays UK, replied to the Treasury committee saying “Barclays offers a variety of savings products to suit different customer needs. We offer interest rates of up to 5%, with products explicitly designed to play different roles in helping customers achieve their savings goals.”
The letter also claimed that Barclays had contacted more than eight million customers in the past six months customers “to make them aware of their savings choices”.
Charlie Nunn, group chief executive at Lloyds Banking Group, said the bank “must balance the needs of our savers with those of our millions of borrowers… While our savings rates increased significantly in 2022 across a range of our products, our mortgage margin has halved reflecting market conditions.”
He added that: “To suggest that we rely on customer reluctance to switch to increase profits is simply wrong. In fact, we can see that around 7% of the balances in instant access savings are moving between competitors every month, which is testament to the transparency and dynamism of a highly competitive market.”
Letter to the Financial Conduct Authority
Treasury committee chair Harriet Baldwin has also written to Nikhil Rathi, chief executive of the Financial Conduct Authority, to ask what the regulator is doing to ensure more competition in the savings market.
The committee said rates on instant easy access savings accounts at the major retail banks range from 0.55% to 1.20%. It also cited data from some of the banks that indicates around 20% of instant easy access savings accounts have balances of more than £5,000.
Given banks have reported increases in their net interest margins, the MPs ask what analysis the regulator has conducted on whether banks are earning disproportionate profits by increasing rates on mortgages far quicker than rates on savings products.
Baldwin said: “While consumers should continue to shop around for the best rates, the information we’ve received from the UK’s biggest high street banks demonstrates there is much more that can be done.
“We anticipate that the financial regulator will want to look into this issue in further detail, in particular whether the market is truly competitive and if retail banks are relying on customer inertia to keep savings rates low.”
Sam Richardson, Which? Money deputy editor, said: “With inflation going up again, and the high cost of living making it tougher to put money away, it’s more important than ever to get the most out of savings accounts.
“However, it shouldn’t require MPs to take banks to task in order for them to do the right thing and pass on higher rates to their customers. “For those looking to switch, Which? research has found that there are many rivals to traditional high street banks which offer more attractive rates.”