The FCA wants banks to work with their customers to help them find the right deals but says it can’t force up rates for easy access savers.
By James Sillars, Business reporter @SkyNewsBiz
A top City watchdog official has declared it is not his job to set savings rates at banks, as lenders are urged to do more for savers amid accusations they are cheating holders of easy access accounts.
Following a meeting with nine lenders, the Financial Conduct Authority’s (FCA’s) executive director for competition said that banks need to ensure they are providing value to savers.
But Sheldon Mills said it was beyond the regulator’s remit to force a better rate of return.
The meeting, which included bosses from NatWest, Lloyds, HSBC UK and Barclays, was the culmination of pressure on lenders, and the FCA, to ensure fair play.
Banks have been accused of being quick to reflect Bank of England rate hikes in their borrowing costs – hurting the likes of mortgage holders – but acting slowly to pass on rate rises to those able to squirrel away some cash as the cost of living crisis evolves.
The Treasury Committee of MPs wrote to the chief executives to demand a better deal for easy access savers earlier this week, building on a similar plea by chancellor Jeremy Hunt.
He intervened on the issue shortly after securing an agreement with bosses on bolstering help available to mortgage-holders struggling with the impact of rising interest rates to cool the UK’s inflation problem.
While new two and five-year fixed mortgage customers are now paying rates above 6% on average, the average easy access savings rate is 2.49%, according to data from Moneyfacts.
The FCA said following the meeting: “Through preparation for our new consumer duty, which requires the firms we regulate to put consumer interests at their heart, we have started to see some positive action by banks and building societies to improve their rates, and to ensure their customers are benefiting from better value products.
“We now want to see that progress accelerate. We are also increasingly seeing customers switching their savings products to those with higher rates.
“We continue to urge savers to shop around to make sure they’re getting the best deal.”
The banking industry body’s chief executive David Postings responded: “UK Finance and a number of our members had a constructive meeting with the FCA where we discussed a range of issues in relation to savings.
“The savings market is competitive, with a wide range of different accounts available to help people with their individual saving needs.
“We always encourage customers to shop around for the type of account that best suits them.”
Consumer groups point to challenger banks as offering the better deals generally.
The big lenders have insisted there are better rates for those prepared not to touch their savings in the short and medium term.
Banks should ‘do more’ for savers
Moneyfacts reported that the average one-year fixed savings rate today was 4.83%.
After 13 consecutive increases, bank rate – the UK’s base-level interest rate – currently stands at 5%.
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Age-old complaint about savings rates is down to you rather than bank bosses
Financial markets forecast it will rise beyond 6%, currently peaking at 6.5% next year, given growing expectations that inflation will prove more difficult to cool.
There is a 62% chance of a second consecutive 0.5 percentage point hike, according to the Refinitiv data.
Elderly paying ‘loyalty penalty’ on savings rates
The prospect of more rate rises on both sides of the Atlantic fed into government borrowing costs and stock markets on Thursday too.
The yield on UK 10-year gilts – the effective interest rate charged on government borrowing – stood at levels not seen since the 2008 financial crisis.
Rising yields are bad news for the taxpayer as many gilts are tied to the rate of inflation and so repayments, just like for mortgage holders, become more expensive.
Bank of England data last week showed a record net sum withdrawn from savings accounts during May as households continue to struggle.
Governor Andrew Bailey has pointed to “unsustainable” wage increases becoming engrained in the economy as a reason for heightened interest rate expectations in recent weeks.
