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Banks under pressure to help savers after failing to pass on rate rises

·3-min read
andrew bailey
andrew bailey

Savers are not getting their due from rising interest rates, the Bank of England has said, as it warned it was “watching very carefully” whether banks passed on increases fairly.

Andrew Bailey, Governor of the Bank of England, highlighted how the average easy-access savings account had only increased by 0.3 percentage points since last November, despite the fact that the Bank Rate had climbed up by almost four times as much.

In the same period high street banks have repeatedly raised mortgage rates.

Mr Bailey said: "The evidence suggests that the pass through has been faster to borrowers than it has been to savers so far.”

He said savers had historically received rates which were below Bank Rate, but added that it was "important that savers receive the returns they should".

The Bank raised the Bank Rate from 1.25pc to 1.75pc on Thursday, its fastest rise since 1995.

Every member of the rate-setting Monetary Policy Committee except one joined Mr Bailey in voting for the 0.5 percentage point rate rise. The exception was Silvana Tenreyro, an external member of the committee, who voted for a 0.25 percentage point increase which would have taken the base rate to 1.5pc.

She argued that the combination of surging inflation and the rate rises which have already taken place should be sufficient to slow demand and so ultimately bring inflation back to the 2pc target without a bigger increase in the base rate, according to the minutes of the meeting.

According to the analyst Moneyfacts, the current average rate on an easy-access Isa account is just 0.76pc.

If high street banks offered a rate of 1.75pc to savers, then a pot of £10,000 would earn £175 a year, or £15 a month. However, the average Isa pays almost £100 less, at £76 a year or just £6.33 a month. Those with bigger deposits risk losing hundreds of pounds a year in potential interest.

Some accounts are returning pennies to savers each month. Barclays pays 0.01pc to easy-access savers with a deposit less than £50,000. Savers in this account would earn just £1 a year, or 8p a month, based on a £10,000 deposit.

The average rate for non-Isa savings accounts is 0.69pc, where a £10,000 pot would earn £69 a year, or £6 a month.

Dave Ramsden, deputy governor for markets and banking, also said banks had failed to pass on higher rates to savers.

He said: “It's something we will continue to monitor. It is important that savings products are seen to be representative.”

However even if rate rises are passed on in full, cash savers will see little benefit as the spending power of their pots is wiped out by the rising cost of living.

No saving accounts come close to matching inflation, which reached a 40-year high of 9.4pc in July. The top five-year fixed bond from Shawbrook returns just 3.4pc.

This means that the value of cash savings is dropping quickly. For example, while £10,000 saved in an average Isa at 0.76pc would earn £76 a year, rising prices would eat away £790 of its purchasing power, effectively reducing the pot to £9,210 in real terms.

Inflationary pressures are expected to increase this year, as the Bank of England expects inflation to reach 13pc by autumn.

Rachel Springall, of Moneyfacts, said: “The back-to-back Bank of England rate rises may not be passed on in full to savings customers, so it is vital they compare deals and switch if they are not being rewarded for their loyalty.

Ms Springall said lesser-known banks were doing a better job at passing on rate rises to their customers than high street rivals.

“As long as they have the same protections in place as a well-known bank, there is little reason to overlook them,” she said.

The best paying variable cash Isas were from Marcus by Goldman Sachs, Saga and Newcastle Building Society, which all paid a rate of 1.5pc, according to Moneyfacts.

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