The big banks must think savers are stupid – or at least ignorant.
There can be no other excuse for them to penalize savers with lower rates of access to savings accounts, but with higher costs to mortgage and loan customers.
Bank customers currently default to paying rates between 3.95 and 6 percent for most mortgages, while savers with easy access deals for the big banks often get pitiful rates of 1 percent or less.
This is due to the Bank of England making a series of hikes in its base rate, which is accounted for in financial deals, as banks pass on more increases on loans than they do savings rates.
The widening gap between low savings rates and high loan costs means one thing: more money for banks. And this money comes directly from the pockets of their customers.
Dealing with both hands: Savings rates are on the rise, but you wouldn’t know it by looking at the interest paid on many of the major banks’ easy-access deals.
The past few weeks have seen all the major banks publish their financial results for 2022, all of which show that they are earning increasing profits from something called “net interest margin”.
In plain English, net interest margin is the cash banks earn from a combination of savings rates paid and loan interest charged to customers, with a few other pieces mixed in.
Between them, HSBC UK, Barclays, Santander, Lloyds Banking Group (including Lloyds Bank, Halifax and Royal Bank of Scotland) and NatWest Group (including NatWest and Royal Bank of Scotland) made £39.9 billion in 2022 alone. Who is this.
Now, it is important for the bank to make some money from its net interest margin, otherwise it will be very poorly managed indeed – and even risk collapse.
But to give context, that £39.9bn figure is up by £7bn in just one year – or an average of an extra £106 for every person living in the UK. Banks predict that this number will only increase during 2023.
Great Savings Deal “Switcheroo”
For bank customers, that’s bad enough – but it’s getting worse.
Not only do banks simply blackmail their customers, they also want to treat them like fools.
I’ll give you an example. The most popular savings deal in the UK is the easy access account. As the name suggests, these bonds allow you to easily deposit and withdraw money, for a relatively low level of interest compared to deals like fixed-rate bonds.
So, when the base rate went up, the more accessible savers were happy, thinking that their savings rates would also increase. And they did – just not for easy access accounts at major banks.
Instead, the big banks withdrew the shift and turned their attention to another savings bargain: the average saver.
Regular savers, as the name suggests, pay interest in exchange for consumers paying cash in instalments. But most will lower the interest rate if the cash is withdrawn before the term expires – usually a 12-month period.
Members of Parliament recently cajoled the heads of several big banks to answer why accessible savings rates are so low and mortgage rates so relatively high.
What the bank bosses have said is that, surprisingly, savers don’t want easier access rates. Instead, they want better regular savings rates, and to be encouraged to develop the habit of saving using these deals.
There’s also nothing stopping major banks from putting rates on easy access accounts and regular savings deals, of course.
Now, I think regular savings deals are great—I have one myself. They are an important part of the savings world and I applaud any financial company that offers them.
And in a way, the big banks are right. We have a proven track record of saving as a country – our budgets have shrunk from the cost of living crisis. Maybe a little encouragement to save isn’t such a bad thing.
That’s just one small problem – savers aren’t enthusiastic about regular savings deals.
Or at least, readers of This is Money aren’t. A poll of our loyal readers showed that 94 percent want better easy access rates, with only 6 percent for more generous regular savings deals.
Bank bosses may tell the truth that their customers demand better rates on regular savers. We will never know, because the lenders never disclosed these mysterious clients with their vague requests.
They’re also keeping quiet about whether more customers are making regular savings deals as a result of the big push, as banks won’t provide a breakdown when You ask them for This is Money.
Now, play devil’s advocate for a moment, figures from the Bank of England may show a rise in the number of people using regular savers, but that’s hard to come by. The problem with the way the bank records the numbers for savings transactions is to put them into two broad pots — products that allow quick access to cash, and products that don’t.
The saver’s regular deals fall into the last pot, which the bank calls “time deposits.” In fairness to the big banks, official figures show customers placed an additional £6.9bn in term deposits in December 2022, the latest figures available.
But term deposits also include products like fixed-rate bonds, which are much more popular than regular savings deals, so it’s hard to know where the money is going.
Want good savings rates? Forget the adults
It all adds up to one thing — if you want half-decent interest rates from an easy-to-access account with a bank, you can officially forget about it.
Keeping large sums of cash in easy access accounts of large banks is nothing more than masochistic at this point if you had any other choice.
Fortunately, the other options seem pretty decent. Savers who want good cash returns in an easy access account should consider best buy deals from other savings companies like Chip, which pays 3.15 percent interest, or Shawbrook, which pays 3.06 percent. Both deals are protected under the Financial Services Compensation Scheme, meaning your money is safe up to the £85,000 per business level should they go under.
Or, the big banks could listen to readers of This is Money—many of whom have been loyal customers for life—stop treating them like fools and pay a fair price on their favorite savings deals.
In the meantime, check out what you can get in our best independent savings rate tables and vote with your feet.