The UK’s financial watchdog has told Britain’s largest banks that it wants to see faster progress on improving savings rates for customers, as lenders come under fire for profiteering.
The Financial Conduct Authority said after a meeting with senior bankers on Thursday that “those in the room recognised that they needed to do more to help their consumers access the best rates”.
The watchdog said that although banks had taken steps to improve savings rates, it now wanted “to see that progress accelerate”.
Chief executives and senior bankers from Barclays, Lloyds Banking Group, NatWest and HSBC met Sheldon Mills, the FCA’s executive director for consumers and competition, amid concerns that savings rates are lagging behind the soaring cost of mortgages.
Under consumer duty rules, which come into force at the end of July, the regulator has greater powers to take action against banks who are not delivering “good outcomes” for their customers. That includes on savings rates, the FCA said on Thursday.
“Many people are feeling the squeeze from rising interest rates and prices, so it is more critical than ever that they are offered fair and competitive saving rates,” the FCA added in its statement after the meeting.
The watchdog said it had “challenged firms where their decision making has been slow” in recent months, including when lenders had made only small increases to their variable rate savings products despite rising interest rates.
Mortgage rates have surged as the Bank of England has made a series of interest rate increases to 5 per cent last month, prompting a jump in gilt yields off which mortgages are priced. The average rate for a two-year fixed-rate mortgage has risen to 6.52 per cent, the highest level since the end of October last year, according to Moneyfacts. The average rate on a two-year savings account has reached 4.79 per cent.
But consumer finance experts said many people are wary of locking their money away for a fixed term during a cost of living crisis and when prices are rising. The average rate on an easy-access savings account is 2.49 per cent, Moneyfacts said.
Harriett Baldwin, chair of the House of Commons Treasury committee, said it is “clear that savers have been getting a raw deal for too long”.
She added: “While it’s welcome to hear the banks recognise further action is required, it’s time to see an acceleration in progress. We will be following developments closely and will be particularly alert to any apparent foot-dragging.”
Bankers attending the meeting told the Financial Times before the gathering that talks would include how to improve communications with customers on savings rates to ensure they were getting the best deal.
One banker close to the process said: “It’s a big conversation. You don’t send your CEOs to any old thing . . . it’s not your average get-together. The FCA are doing a review for the end of July on savings and HMT [the Treasury] seem to indicate that it may ultimately turn into a charter.”
Another banker with knowledge of the discussions said the issue of “inertia” and consumers failing to move accounts to take advantage of better rates had been a salient topic during the discussion.
The FCA is aiming to report by the end of the month on the savings markets and how well it is supporting savers. This includes requiring the largest lenders to explain the pace and extent of interest rate increases on savings and how they are proactively supporting customers in switching.
Angela Eagle, a member of Treasury select committee, said earlier this week that the high street banks “are squeezing higher profits from their loyal savings customers”, noting that the “blatant profiteering has been shocking.”