The “harm” done to millions of loyal customers of major banks who earn low interest on their savings is likely to have worsened as interest rates rise, the UK’s top financial regulator has warned.
The Financial Conduct Authority said it had challenged some banks that had been stingy with their savings rate hikes and warned it would be considered “onerous intervention” if it concluded their concerns were not being adequately addressed.
The Bank of England’s official base rate is 4.25% after 11 hikes in a row, but the rate offered by some mainstream savings accounts is lagging behind.
In February, MPs on the Treasury committee questioned the heads of the UK’s four biggest banks (Barclays, HSBC, Lloyds and NatWest) about this, and on Thursday committee chair Harriett Baldwin said: “The regulator it has now given us official confirmation that the UK’s biggest banks are benefiting from interest rate hikes and loyal savers are increasingly hurting.”
Much of the focus has been on instant access accounts. The Barclays Everyday Saver offers only 0.65% interest and the Santander Everyday Saver pays 0.7%. Lloyds Easy Saver offers just 0.65%, unless the saver has £25,000 or more in savings.
There are other accounts that pay even less: Virgin Money’s Everyday Saver offers just 0.25%.
Last month, MPs on the Treasury committee said: “It’s hard to avoid the conclusion that our biggest banks are taking advantage of their most loyal customers to boost profits and CEO pay.”
In a letter to the committee, FCA chief executive Nikhil Rathi said it was standard practice for financial firms to offer better rates to new savers while leaving existing clients with less competitive rates.
He said the regulator saw evidence of this during work it carried out in 2020, adding: “We expect the harm from this practice (and the loyalty penalty faced by old customers) will have increased as the base rate has increased.” increased”.
The FCA’s upcoming “consumer duty”, due to take effect on July 31, would ensure that financial firms, including banks, insurers and investment firms, would focus on delivering “good results” for clients, it said. rahti. There will be a focus on “price equity” for all groups of savers that would challenge some current practices and require “significant cultural change,” he added.
MPs asked the FCA what it was doing to ensure the UK’s multi-trillion savings market, and easy access accounts in particular, were competitive and that banks were not reliant on customer inertia to keep rates low. interest on savings.
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Rathi said he had been monitoring this, adding: “We have questioned and sought more information from some outliers that had made relatively small increases to their variable rate savings products in 2022 and where we saw a material delay in the rollover to savings products. relating to mortgages.
The regulator previously discussed the idea of an “easily accessible single rate” on all UK instant access savings accounts, and Rathi said the FCA was open to reviewing this “or considering other more onerous interventions” if it later concluded the possible “fidelity”. the penalty damages he identified had not been “adequately mitigated.”
Baldwin said that with banks set to release their first-quarter results in the coming weeks, his committee would monitor whether companies “continued to squeeze profits from their loyal thrift customers.”