Demand banks pass on interest rate rises to savers, MPs tell City watchdog

·2-min read
Savings Rates
Savings Rates

The City watchdog is under pressure to ensure that banks pass on higher interest rates to savers.

The Treasury Select Committee, an influential group of MPs, has written to the Financial Conduct Authority to demand action, after grilling the chief executives of Britain’s four biggest banks.

Barclays, HSBC, Lloyds Banking Group and NatWest Group were forced to defend their easy-access savings rates at the beginning of February, which pay less than 1.3pc in annual interest. This is despite central interest rates rising to 4pc in a bid to fight inflation.

The Bank of England is expected to raise rates by a further 0.25 percentage points on Thursday, after inflation hit 10.4pc.

Conservative MP Harriett Baldwin, who chairs the committee, 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.”

In a letter to Nikhil Rathi, the chief executive of the FCA, Ms Baldwin asked him to explain what the regulator is doing to make sure there is effective competition in the markets for savings and mortgage customers.

Ms Baldwin demanded to know why the FCA has abandoned its proposed reforms of the savings market, which were aimed at improving savings rates.

Under the rules, all firms would have been forced to set a single easy-access rate across all easy-access accounts after 12 months, in a move intended to abolish the so-called saving “loyalty penalty”.

The reforms were proposed in December 2020, but the work was paused because of the pandemic and has not resumed since.

Ms Baldwin said: “The committee has heard that while banks may provide competitive interest rates to new savers, those who stick with their savings account may still be left with historic lower rates.”

The FCA has been given a deadline of April 12 to respond.

The regulator previously told the committee it had been having discussions with banks on how they make decisions on savings rates.

A spokesman for the FCA said: "We welcome the committee’s interest in this area and we’ll reply in due course."