High street banks must “up their game” in passing on the benefits of higher UK interest rates to customers, an influential parliamentary watchdog warned on Thursday.
Data published by the House of Commons Treasury select committee showed that while UK lenders had lifted rates on easy access savings accounts in recent months, their offers were lagging the Bank of England’s base rate and those of newer and deep-pocketed US banks.
“With the [BoE] confirming the pass through of base rate increases to easy access savings accounts has been unusually weak, it’s clearer than ever that the nation’s biggest banks need to up their game and encourage saving,” said Harriett Baldwin, Conservative chair of the cross-party group of MPs.
The TSC found that easy access savings rates offered by the Big Four — Lloyds, NatWest, HSBC and Barclays — in February were 0.5-0.65 per cent, at a time when the central bank had raised the base rate, which influences what banks offer consumers, to 4 per cent.
Increases in the base rate — now at 4.5 per cent, a 15-year high, in a push to tame high inflation — boost lenders’ net interest margins, the difference in what they pay on deposits and earn from loans and other assets. They also contributed to strong financial performances among the four in first-quarter results last month.
As of Thursday, high street lenders had increased their savings rates to between 0.7 and 1.35 per cent. This means some banks have outpaced the BoE’s 0.5 percentage point increase in the base rate since February but are far off 4.5 per cent.
They also lag the rates offered by the UK digital services operated by well-capitalised US banks, whose deposit base is nearing regulatory limits.
Goldman Sachs, which offers a savings rate of 3.5 per cent through Marcus, has been lobbying the TSC on the merits of raising the thresholds at which banks have to split their trading arms and retail banks, one person familiar with the situation said.
The ringfencing threshold stands at £25bn, which Marcus is approaching, constraining its ability to accept new deposits.
Chase, JPMorgan’s UK retail operation, offers interest rates of 3.3 per cent and its balance sheet is also capped at £25bn. Ministers have committed to reviewing ringfencing rules as part of the Edinburgh reforms, which are designed to boost the UK’s competitiveness in financial services.
Fintechs are also offering competitive rates. Digital bank Monzo, whose revenues doubled last year, is offering 3.4 per cent on its instant access savings pot while Kroo, a newer app-based lender, is offering 3.6 per cent.
According to the TSC, rates at the so-called scale challengers — Virgin Money, Santander, TSB and building society Nationwide — which account for one-quarter of UK personal current accounts, varied from 0.25 per cent to 1.25 per cent.
Additional reporting by Laura Noonan
Source: Financial Times