High street banks have already pocketed £18.4billion this year from the gap between what they charge borrowers and pay savers – as they come under fire from politicians and the financial regulator.
This is Money’s analysis of the major banks’ half-year results showed every single firm made a growing amount from net interest margins – the difference between low savings rates and high mortgage and loan costs.
These findings show that Barclays, NatWest, Lloyds Banking Group, HSBC UK and Santander have already made a combined £18.4billion in 2023.
That is an increase of £3.2billion on the same period in 2022.
Rate rows: Politicians have hit out at banks for not passing on base rate rises to savers with easy access accounts, the most popular savings deal
Banks had made almost £40billion from the practice by the end of 2022.
Banks say the reason for the increase in their margins is the rise in Bank of England base rate.
Base rate is factored in to the price of mortgages and loans, and also to the interest paid to savers. Increases mean borrowers pay more, but savers earn more – or at least, they should if banks pass the increases on.
Base rate is now 5 per cent, up from 1.25 per cent a year ago due a series of hikes by the Bank of England to tackle high inflation.
But a third of savings held in easy-access accounts is earning 1 per cent or less in interest.
For the banks, base rate rises mean more money coming in as they increase the cost of new mortgages and loans.
For example, HSBC UK’s financial results for the first half of the year said its net interest margin was up due to ‘successive interest rate rises’, while Barclays noted ‘net interest income growth from higher rates’.
But while banks have profited from passing base rate hikes onto mortgage and loan customers, top MPs have slammed financial firms for being slow to increase their savings rates in the same way – especially on the most common savings deals, easy access accounts.
Poor savings rates amount to ‘blatant profiteering’ by banks, according to Angela Eagle MP, a member of the Treasury Committee.
Treasury Committee chairman Harriett Baldwin MP called on banks to ‘step up their measly easy access savings rates’ and added that banks were failing on their social duty to encourage saving.
On the radar: The FCA has just fired a warning shot against banks underpaying savers
Now the Financial Conduct Authority regulator has stepped in over the issue of low savings rates.
Earlier this week the FCA said banks were too slow to pass on base rate hikes to savers, and set out a 14-point plan for them to sort the problem out.
The regulator added that nine of the biggest savings providers only passed on 28 per cent of the base rate rise to their easy-access accounts between January 2022 to May 2023.
How much are banks making from net interest margin?
For HSBC UK, the net interest margin increased to 2.41 per cent in H1 2023 from 1.7 per cent in the same period of 2022 – meaning an extra £1.1billion for the bank.
Barclays’ margin rose from 2.67 per cent in the first half of 2022 to 3.2 per cent now, netting the bank an extra £546million.
NatWest Group, including NatWest, Royal Bank of Scotland, Ulster Bank and Coutts, had a net interest margin of 3.2 per cent in H1 2023, up from 2.58 per cent in the first six months of 2022.
That increase made NatWest Group an extra £1.3billion so far during 2023.
Lloyds Banking Group, including Lloyds Bank, Halifax and Bank of Scotland, made an additional £66million from its net interest margin rising from 2.77 to 3.18 per cent over the period.
Meanwhile Santander’s UK arm made an additional £213million in H1 2023 as its net interest margin rose from 2.03 per cent from H1 2022 to 2.21 per cent in the same six-month period of 2023.
What about the future?
Some banks expect their net interest margins to fall this year – but only slightly.
For example, Barclays believes its own margin will fall from 3.2 per cent to 3.15 per cent by the end of 2023.
Lloyds Banking Group currently has a net interest margin of 3.18 per cent, which it thinks will drop to no more than 3.10 per cent this year.
A Lloyds spokesman added that this fall may already be happening, with the bank’s net interest margin falling from 3.22 per cent in the first three months of 2023 to 3.14 per cent in the second quarter.
What the banks say
A Barclays spokesman said: ‘Following customer research, our savings range has been designed to help customers create healthy saving habits. Beginning in July, we have been targeting 1.3million customers to inform them of the accounts we have designed to play different roles in helping to achieve their savings goals.
‘With just a few taps on the Barclays app, customers can open a Rainy Day Saver at 5 per cent and/or a Blue Rewards Saver at 3 per cent.’
A spokesman for HSBC UK did not comment but referred to comments made by group chief executive Noel Quinn: ‘We take our responsibilities very seriously to make sure that we offer fair and appropriate products to our customers, whether that’s mortgages or savings.
‘We are trying to get the pricing comparable and balanced between savings rates and mortgage rates.’
A Santander UK spokesman said: ‘We are committed to providing value for our customers and recently introduced a simplified range of savings products paying up to 5 per cent interest.
‘We are proactive in contacting customers when they reach the end of their initial fixed rate, to inform them of alternative products.’
Some banks also pointed out that some of their net interest income is not just made up of savings and borrowing rates.
Many banks also use financial deals called ‘structural hedges’ which affect net interest margins.
These hedges are meant to smooth out how rapid base rate changes affect customers.
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