Biggest banks cut savings rates despite high interest rate ...Middle East

The UK’s biggest banks have cut rates on their flexible savings accounts, offering typically 1.5 per cent less than the market average despite making bumper profits.

Savers with high street banks could be missing out on hundreds of pounds of interest each year as a result, data shows.

Barclays, HSBC, Lloyds Bank, NatWest and Santander pay on average a rate of 1.42 per cent between them on their easy access accounts, but this is “significantly lower” than the market average rate of 2.9 per cent, based on a £10,000 deposit, according to research from Moneyfacts.

It comes after high street banks made large profits. Lloyds reported £9.64bn in profits in 2023, with Barclays making £6.43bn and NatWest £5.49. Santander UK, HSBC also made billions.

Most banks reserve their best rates for fixed accounts where savers must lock their money away for set periods of time.

Many banks cut their savings rates in response to the Bank of England reducing interest rates twice last year. However, while the Bank’s base rate still remains at 4.75 per cent, many easy-access deals, the most popular type of account, are far below this.

And despite keeping savings rates low, lenders have upped their mortgage deals in line with the higher base rate, with the best fixed mortgage deals still hovering above 4 per cent.

Savings rates are likely to come down even more, as the base rate is expected to fall this year, by at least 0.5 percentage points.

Personal finance expert Andrew Hagger said: “The big high street banks have never really had much of an appetite for retail savings balances.

“The banks rely on the apathy of savers who stay put rather than switch to better deals – even when they could in some cases earn twice as much interest.”

Rachel Springall, finance expert at Moneyfacts, said it would be “disheartening” for savers to find the biggest banks had cut rates on their most flexible savings accounts, resulting in a further drop in their market positions.

She added: “Savers who prefer to have their cash at hand will unsurprisingly feel disgruntled that the situation has only worsened, as the Bank of England made base rate cuts, the big banks were soon to follow.

“But the banks prove they can offer competitive returns of interest on accounts that lock away cash for a guaranteed return, such as on fixed-rate bonds.”

Banks have been targeted previously by Commons Treasury Committee for not passing on higher interest rates to savers, with MPs calling on institutions to be more generous towards their customers rather than increasing their profit margins.

In response, bank bosses argued that attempts were made to encourage savers to look at all the available deals.

Harriett Baldwin, a Conservative MP who previously chaired the Treasury Committee, said: “Banks who remain uncompetitive for savers are being left behind, as evidenced by results which show a huge number of people switching lenders for a better deal. Banks will be aware of the regulators’ roll out of consumer duty and I hope this leads to better outcomes for consumers.”

The Treasury has been contacted for comment.

Best savings rates

The top-paying easy-access accounts right now are with Chip and Atom Bank.

Chip’s easy access account pays a rate of 4.85 per cent, including a 1.03 per cent six-month bonus, but limits you to just three penalty-free withdrawals a year.

Atom Bank also offers a top rate of 4.85 per cent if you don’t withdraw. The account’s rate falls to 3.25 per cent in each month you withdraw.

Savers can also get similar rates by opting for a fixed deal. For example, the best one year fixed rate is with Vida Savings offering 4.77 per cent.

Should interest rates go down, as expected, fixed rates can be a good option if people can afford to lock their money away as they will offer a better return for longer.

James Blower, the founder of The Savings Guru, said: “The big banks have long paid interest rates to savers well below the best buy rates.

“Savers had got use to low interest rates after the financial crisis of 2007 with this only really starting to improve in 2022.

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“Prior to that, savers had come to expect rates of less than 1 per cent on easy access, even for best buy accounts.

“As the base rate rose through 2022, this changed significantly with best buy rates improving rapidly.

“However, the big banks moved like Usain Bolt when it came to increasing their mortgage rates but like a tortoise when it came to improving savings rates.”

It comes at a time when many households, including pensioners, are struggling financially.

The government will be concerned that a failure to pass on interest rates will impact on its key performance indicator for this Parliament – which is to make voters feel better off with more money in the pocket.

The high cost of living, sticky inflation and the loss of the winter fuel payment for those not in receipt of pension credit – affecting around 780,000 eligible pensioners, according to official figures –all contribute to how much disposable income people feel they have.

Those looking for better returns should look beyond the biggest brands when comparing rates, experts advised.

Ms Springall said: “Loyalty does not pay which is why savers need to look beyond the biggest brands when comparing savings rates.

“Regularly reviewing and switching pots is essential when interest rates change, particularly when base rate cuts flow into the savings market.”

Anna Bowes, co-founder of Savings Champion, added: “The bottom line is that the rates on the high street banks standard easy access accounts are generally very uncompetitive, so don’t leave your cash to languish, earning less than inflation, when you could be earning so much more.

“These providers are unlikely to change their attitudes, unless the base rate were to start rising again, and even then it would only be by as little as they can.”

What did the banks say?

The i Paper asked the five largest banks why they were not passing on high interest rates to their easy access accounts.

A Santander spokesperson said: “We are committed to delivering value for our savings customers and offer a range of competitive savings products, including our Regular Saver paying 5 per cent.”

A HSBC UK spokesperson said: “While we do review our rates in line with market conditions, we are committed to supporting customers by providing overall value on our savings accounts and offer a range of different types of account to suit our customers’ varied needs.

“The value we offer goes beyond interest rates to include convenience, simplicity, and organisational and financial stability of the bank.”

A NatWest spokesperson said: “We regularly review our interest rates. Our easy access accounts are our most flexible and offer customers immediate access to their funds with no conditions.

“We offer a range of products and regularly encourage customers to review the interest rates on their savings accounts to ensure they are getting the most for their money and have a suitable account for their needs.”

Barclays and Nationwide have been contacted for comment.

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