Receive free UK banks updates
We’ll send you a myFT Daily Digest email rounding up the latest UK banks news every morning.
The UK’s largest lenders have improved the rates they pay to savers days after they were summoned to the financial regulator amid mounting political anger that they are profiteering from rising rates.
The chief executives of the UK’s largest banks and building societies were called into the Financial Conduct Authority last week as MPs voiced concern that banks have been failing to pass on interest rate rises to savers while raising mortgage costs.
There are now signs that savings rates have started to improve — particularly on instant access accounts — although it can take time for lenders to reprice savings products after base-rate rises. The market is also becoming more competitive, with savers shopping around for better rates, piling the pressure on banks to improve their offerings.
A two-year fixed savings account with £10,000, which was paying an average of 4.79 per cent on the day of the FCA meeting on July 6, paid 5.07 per cent on Friday, according to Moneyfacts.
An easy access savings account that paid 2.49 per cent on July 6 is now paying 2.6 per cent.
Harriett Baldwin, chair of the Treasury select committee, said: “While it’s positive to see that some firms are responding to our continued pressure, the easy access rates offered by the high-street banks continue to lag behind the average and are significantly lower than the Bank of England base rate. Banks must now step up and start alerting customers where better products are available.”
The BoE has made 13 consecutive rate rises, pushing the bank rate up to 5 per cent last month but MPs complain not enough has been passed to savers. The cost of a two-year fixed-rate mortgage has reached 6.78 per cent, the highest level since the 2008 financial crisis.
One chief executive of a high-street bank denied that the recent increase in savings rates was in response to the FCA meeting, attributing it instead to competition in the deposit market.
“The whole point about the FCA is they’re not a price regulator,” the CEO said. “The pricing of deposits is based on funding, liquidity and market competition. The swap curve has gone up massively.”
The move comes as America’s biggest banks continued to benefit from higher interest rates, even as worries about loan defaults — especially in commercial real estate — grow. JPMorgan Chase on Friday became the latest to report a jump in profits in the second quarter.
Richard Buxton, UK fund manager at Jupiter, said: “It’s a shame that government and regulators are so quick to use the word profiteering because, frankly, the return on equity is not egregious. Banks are passing on the benefit of higher rates.
He added: “The US is a different banking model: look at their valuations, they’re at a premium to book value, whereas in the UK they trade at a discount.”
Andrew Bailey, the BoE governor, weighed into the debate this week, saying it was “important” for UK banks to pass on higher interest rates to savers and they were in a strong financial position to do so.
The FCA last week told lenders that, although savings rates had improved, it wanted “to see that progress accelerate”. It is also probing investment platforms over the profits generated on customers’ cash. It will report back by the end of July on its longstanding work in the savings market.
The watchdog’s new consumer duty rules, which require banks to prove they are prioritising “good outcomes” for their clients, also kick in at the end of July.
Banks face increased scrutiny as they prepare to report healthy first-half profits later this month, bolstered by rising interest rates. They must respond by Monday to the select committee over concerns about their rates offered to savers.
When the committee began its investigation into retail banks in February, the big four banks offered between 0.5 and 0.65 per cent easy access savings rates, against a 4 per cent base rate. As of Friday, the banks are offering rates between 0.9 per cent and 1.75 per cent at a time when the base rate is 5 per cent.
However, Nigel Terrington, chief executive of Paragon Banking Group, said the big four “have put up fixed rates, but these products are not a significant part of their overall balances”, noting that their rates on easy access accounts are much lower.
Some bank analysts say the savings market is already competitive. John Cronin, analyst at Goodbody, said in a note: “Pushing up rates further now to soothe the short-term concerns of politicians would likely cause more pain for borrowers when rates start to reverse — someone has to pay.”
Shareholders in UK banks are also sanguine. Adrian Frost, a UK fund manager at Artemis, said pressure from politicians and the regulator was “not a point of major concern because banks are inherently in a more profitable environment with higher interest rates and strong capital positions.”
Ian Lance, co-head of the UK value and income team at fund manager Redwheel, said banks should not be made scapegoats for the cost of living crisis. “Regulators, on the other hand, should be interested in them building their capital ahead of any increase in loan losses associated with an economic downturn and certainly should not be setting a targeted level of profitability.”
Comments are closed, but trackbacks and pingbacks are open.