Watchdog summons banks to explain paltry savings rates

Bank bosses have been summoned to a meeting with the financial watchdog to discuss concerns surrounding interest rates for savers lagging behind the cost of mortgages.

The Financial Conduct Authority (FCA) expects chief executives from HSBC, NatWest, Lloyds and Barclays, as well as from smaller lenders, to attend on Thursday amid allegations of “blatant profiteering”.

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Higher interest rates have resulted in banks increasing mortgage rates sharply, yet savings rates are not rising at the same pace. 

The average easy access savings rate today (5 July) is 2.48% while the average 1-year fixed savings rate is 4.80%, according to Moneyfacts. 

Meanwhile, the average 2-year fixed residential mortgage rate is 6.51% and the average 5-year fixed residential mortgage rate is 6.02%.

The Bank of England raised its base rate to 5% last month and further increases are now expected.

Chancellor Jeremy Hunt has said it is an “issue that needs solving” amid households struggling with the cost of living crisis.

But sources were playing down the likelihood of a charter being drawn up in the vein of the one agreed between Chancellor Jeremy Hunt and the big mortgage lenders.

Meanwhile, Rishi Sunak said the Financial Conduct Authority (FCA) wanted to deliver “better deals for savers”.

The Prime Minister told the Commons Liaison Committee: “What the Chancellor said is the issue needs to be resolved.

“I know that he has met recently with the FCA and they have agreed to deliver better deals for savers by driving competition and increasing reporting, which I think they are doing in the next few weeks, in particular, to make sure that savers are benefiting from higher interest rates.

MPs on the Treasury Committee were stepping up their campaign to increase saving rates for lenders, which are failing to keep up with soaring mortgages.

They wrote to the four biggest lenders demanding answers to their concerns that saving rates are “too low” in the light of the base interest rate reaching 5%.

Dame Andrea Leadsom, the former Cabinet minister who sits on the committee, said that “it’s quite clear they have failed to pass on the rise in interest rates to savers”.

Colleague Dame Angela Eagle added: “This blatant profiteering has been shocking, and it’s clear to me this behaviour is miles away from the incoming requirement for firms to treat their customers fairly and with respect.”

From the end of July, a new consumer duty will be introduced to force financial firms to put consumers at the heart of what they do.

THE BEST SAVING RATES

Even though returns on cash savings accounts are still negative in real terms as inflation at 8.7% eats away at even the most competitive savings rates, if you have cash lingering in an account that pays a poor return, then here’s where you can shift your money to to get a boost.

The best easy-access savings account pays 4.21% from Chip Instant Access Saver. It is only available to existing customers and managed in-app.

The best savings account for existing customers is First Direct’s Regular Saver that pays 7% for 12 months. Monthly savings are limited to a maximum of £300.

Meanwhile, the best one-year fixed savings account is with My Community Bank and pays 6.03%. It has a minimum deposit of £1,000.

For more on savings rates, see our Best savings accounts July 2023.