MPs said that lenders must “up their game” and pass on higher rates to savers as bank bosses responded to an inquiry on the “measly” rates on offer.
The influential Treasury Committee pointed to low rates on offer for easy access accounts across the UK’s ‘scale challengers’, Nationwide, TSB, Virgin Money and Santander.
According to the group of MPs, Virgin Money offered 0.25 per cent on its everyday saver while Santander offered 0.85 per cent. TSB offered 1.1 per cent and Nationwide 1.25 per cent. The Bank of England’s base rate stands at 4.5 per cent.
These accounts make up a quarter of personal current accounts in the UK, according to the Financial Conduct Authority (FCA).
The banks argued that many factors beyond the base rate went into determining the rate on offer to savers. This includes its funding costs and regulatory requirements.
The lenders also highlighted that higher rates were on offer across other products, which required savers to lock up their funds for longer.
As Nationwide explained, “with instant access funds, we can’t lend them so easily to mortgage borrowers, who generally seek fixed term lending. As a result, the market tends to offer higher rates for fixed term deposits because of the certainty and stability they provide.”
All of the banks offered higher rates on other products such as ISAs, with many rates exceeding four per cent.
Virgin Money said easy access accounts had “niche appeal”, as savers often preferred to take the higher rates even if it meant limiting access to their funds. At Virgin Money, just 0.3 per cent of the savings accounts opened in the last six months were easy access.
However, data from the Bank of England shows that around 60 per cent of household deposits are held in instant access accounts.
The banks argued that another key consideration in pricing decisions was the level of investment it would be able to undertake. “When making pricing decisions…we also want to ensure we can continue to provide the level of investment in our services,” Santander said.
The bank highlighted the investment required to maintain a branch network as well as the significant sums put towards tackling fraud.
TSB also highlighted the need to “continue to invest in developing products, services and skills that meet more of our customers’ needs”.
These arguments did not convince Harriet Baldwin, chair of the Treasury Select Committee. “It’s clearer than ever that the nation’s biggest banks need to up their game and encourage saving,” she said.
“While other products are available to those who shop around, the measly easy access rates on offer lead us to conclude that loyal customers are being squeezed to bolster bank profit margins,” Baldwin continued.
Jenny Ross, editor of Which? Money suggested that banks would come under pressure when Consumer Duty, which requires firms to deliver good outcomes for customers, comes into place this summer.
“The introduction of the FCA’s Consumer Duty must mean tough action against firms who continue to offer such meagre rates,” she said.
“In the meantime, the advice from Which? is simple: if you’re not happy with the interest you’re earning from your bank, now’s the time to switch.”