Millions of people are being short-changed on savings rates, with banks and building societies failing to pass on this month’s 0.5 percentage point interest rate rise, research has claimed.
What’s happened?
On 4 August, the Bank of England pushed up interest rates by 0.5 percentage points to 1.75% as the UK battles to prevent inflation running out of control. It was the sixth successive interest rate hike.
In theory this is good news for the UK’s army of savers, who were the losers from years of interest rate cuts. Many will have been expecting to see the rates on their savings accounts climb – but the reality has all too often been very different.
So what’s the bad news?
Research issued on Tuesday found that as of 15 August, Britain’s banks and building societies had passed on the full 0.5 percentage point increase to just two out of 233 easy access savings accounts.
As of that date, the only provider to pass on all of the increase was the West Brom building society, according to the study by the website Investing Reviews.
Providers that had given their accounts some sort of boost – that is, they had passed on part of the increase – included Zopa, Tesco Bank, Atom Bank, Tandem Bank, Skipton building society and Gatehouse Bank, it said.
In all, only 26 easy access accounts (11.2%) had seen any increase at all in the rate paid following the 4 August rise, the study said.
Do banks have to pass on interest rate rises?
Account providers are at liberty to do what they want with savings rates unfortunately. They might decide to pass on all, some or none of an interest rate rise (or reduction).
One sliver of good news is that sometimes banks will wait a while before making changes to savings rates – maybe several weeks or even longer. So – taking a glass-half-full view – just because your account has not as of today had its rate increased does not mean you will not get an increase.
One expert said: “To be fair, it is a little early to see savings changes … Some brands may only now be catching up to prior base rate rises.”
Earlier this year, Rachel Springall at the financial data firm Moneyfacts said: “As we have seen time and time again, there is no guarantee savings providers will boost their rates because of a Bank of England rate rise and, even if they do, it could take a few months to trickle through to customers.”
On 23 January this year, more than five weeks after the Bank of England lifted the base rate from 0.1% to 0.25%, the Guardian reported that only four financial firms had passed on the full rise to all, or nearly all, of their variable-rate savings account customers.
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So some people have benefited from savings rate increases?
Overall, according to figures issued on Monday by Moneyfacts, the average easy access rate has risen to 0.7% and stands at its highest point in nine years. In August last year the average was 0.18%.
So why aren’t providers increasing savings rates?
Some experts have previously argued that most of the big banks are uninterested in attracting savers’ deposits.
Some will say the banks are relying on customer apathy. Some customers will quit in search of a better deal, if they can find one, but many others will not notice the change or will not get around to moving their money.
But rising interest rates are obviously good news for savers?
Yes of course, but unfortunately, even if the latest increase is passed on in full, rising inflation – currently 9.4% and set to go higher – is eroding the value of people’s nest-egg cash.