Concerns Mount over Low Savings Rates
Bank executives in the UK are being summoned by the financial watchdog due to concerns about persistently low interest rates on savings. While mortgage costs have risen sharply with higher interest rates, savings rates have not kept pace, posing challenges for households grappling with the rising cost of living.
Meeting with Financial Conduct Authority
Top executives from prominent banking institutions such as Lloyds, HSBC, NatWest, and Barclays have a planned meeting with the Financial Conduct Authority (FCA) to discuss inquiries related to their savings rates and methods of communication employed while engaging with customers. The FCA aims to explore the reasons behind low savings rates and seek solutions.
Banks’ Responses and Actions
HSBC has stated that it has increased savings rates multiple times in the past year, while Barclays has declined to comment on the meeting but acknowledges regular reviews of its savings rates.
Lloyds and NatWest have been contacted for their perspectives on the matter. Chancellor Jeremy Hunt has expressed support for the FCA’s efforts to ensure better rates from banks.
Savings Eroded by Inflation
The Bank of England has steadily raised interest rates in an attempt to curb inflation. However, while mortgage rates have surged, savings and current account rates have seen more modest increases. This discrepancy has led to a widening gap between mortgage and savings rates, potentially eroding the value of people’s savings.
Long-Standing Issue and the Role of Competition
Financial experts, including Iona Bain, highlight that poor savings rates have been prevalent since the aftermath of the 2008 financial crisis. The dominance of major High Street banks contributes to the lack of competitive rates.
Although challenger banks are gradually encouraging customers to shop around, switching accounts remains relatively low. Consumer behavior plays a significant role in prompting change.
Pressure on Banks and Concern for Savers
The Treasury Select Committee has been pressuring banks throughout the year regarding their low savings rates, with concerns raised about the fairness of these rates, particularly for older customers who may face challenges with digital banking or switching accounts.
The chancellor has criticized the delayed response of banks in passing on interest rate increases to savers. The FCA will release a report by the end of the month assessing the support offered to savers in the cash savings market.