This is important not just because it offends people’s sense of fair play, and taps into a deeper narrative of supposed profiteering at a time of squeezed living standards, but because in theory it also makes monetary policy less effective.
Higher interest rates should act on demand as much by increasing the incentives to save rather than spend, as by eating into disposable income by raising borrowing costs.
If not passed through, higher rates are also a kind of taxpayer subsidy to the banks, since the Treasury effectively pays Bank Rate on much of the national debt, an unfortunate consequence of past programmes of quantitative easing.
This might be less of an issue were banks passing the resulting windfall onto their depositors, but if the proceeds are instead going straight down to the bottom line, it’s harder to justify.
The case for the prosecution, then, is a strong one. According to the Financial Conduct Authority, some 60pc of the £1.5 trillion held in interest-bearing UK savings accounts are held as “sight deposits”.
This means that they can be withdrawn at any moment without any penalty.
The FCA reckons that as far as these accounts are concerned, only 28pc of the rise in official interest rates between January 2022 and May 2023 was passed through, compared to an average of 80pc between 2004 and 2009.
But is this really the scandal it is portrayed as, and is it not as much the depositor’s fault for being careless about how they manage their money as it is the rapacious banker’s?
After all, term deposits, where money is locked up for a year or more, are already paying some highly competitive rates which are, in some cases, higher than Bank Rate. And even sight money is beginning to catch up.
An instant access account is in practice pretty similar to a current account, where no interest is paid as a matter of course.
