Bank executives instructed to clarify reasons for low savings rates

The UK’s financial watchdog has summoned bank executives due to concerns over excessively low interest rates on savings.

While higher interest rates have prompted banks to significantly increase mortgage costs, savings rates are not experiencing a comparable rise.

Amid the soaring cost of living, Chancellor Jeremy Hunt asserts that resolving this matter is crucial, given the challenges faced by numerous households.

On Thursday, the CEOs of Lloyds, HSBC, NatWest, and Barclays banks are scheduled to convene with the Financial Conduct Authority (FCA).

According to the initial report by the Financial Times, the City watchdog will address the banks during the meeting, focusing on their savings rates and communication practices with customers.

HSBC has stated that it has raised its savings rates on multiple occasions for every savings product, surpassing a dozen rate increases since the start of last year.

Barclays refrained from commenting on the meeting but mentioned that it conducts regular reviews of its savings rates.

The BBC has reached out to Lloyds and NatWest for their comments on the matter. Additionally, the Chancellor expressed his support for the Financial Conduct Authority (FCA) in a tweet, stating, “@TheFCA has my full backing to ensure banks are passing on better rates as they should be.”

The relentless increase in UK interest rates by the Bank of England since December 2021, aimed at curbing surging price inflation, has had a significant impact on savings.

The base rate, which directly influences mortgage and savings rates, has risen from nearly zero 18 months ago to its current level of 5%. Consequently, savings have been greatly affected by this upward trend.

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The Bank of England’s objective is to raise the cost of borrowing, incentivize savings, and ultimately reduce spending to curb price inflation. The aim is to create a situation where individuals are less inclined to spend, resulting in a moderation of price increases.

While average mortgage rates have surged above 6% in recent weeks, the increases in returns on savings and current accounts have been comparatively modest.

As of Tuesday, the average rate for a two-year mortgage deal reached 6.47%, whereas the average rate for easy access savings stood at 2.45%. This creates a gap of 4.02 percentage points between the two.

The average rate for a one-year fixed savings account was reported to be 4.8%.

Iona Bain, a financial writer and broadcaster, expressed concern to the BBC, stating that if savings rates fail to keep up with inflation, people’s savings are effectively being eroded or “destroyed.”

Bain further noted that banks have been providing low savings rates since at least 2008, following the repercussions of the financial crisis.

According to Bain, one of the issues lies in the fact that the largest High Street banks possess an effective “monopoly,” despite the gradual emergence of challenger banks that encourage customers to explore alternative options.

Ms. Bain highlighted that although there has been an increase in current account switching, the numbers still remain relatively low. She emphasized that for any meaningful change to occur, the public needs to take action by switching banks and making their preferences known.

Source : bbc.com

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