Search for a consumer group Which one? this week found that over the past five years, banks were twice as likely to cut savings accounts when the bank rate fell than to raise rates when it rose. But why are banks able to rapidly raise mortgage costs and snub savers at the same time?
The answer, of course, is that our apathy means they can afford it. Barclays is perhaps the worst offender with its Everyday Saver easy access account paying the bare minimum of 0.01pc. The message is clear: your savings are not worth paying for.
Banks don’t have to raise savings rates in line with the bank rate, and why would they if they can get away with short savers while increasing their profit margins? They have no social responsibility, only loyalty to shareholders. Deals with higher rates usually turn out to be gimmicks. The only thing that would force them to raise rates is real market competition.
The Financial Conduct Authority, the city’s watchdog, floated the idea of requiring banks to set a minimum savings rate that customers could easily compare. Yet after years of consultation, the plan was scrapped when rates fell to an all-time high during the pandemic. What was the point of allowing savers to shop around when rates just weren’t worth worrying about? Banks have long profited from inertia. Standard variable rate mortgage offers make sense for very few homeowners, but nearly two million of us are taking part, paying an average of 4.9 percent.
The absence of healthy competition on the market now exposes savers painfully. As banks treat savers with contempt, saving risks becoming a worthless business. A habit of saving is crucial to fostering independence and prosperity, but in Britain households now save around 6% of their income. In China, the savings rate is over 30%.
The nation’s savers need a helping hand to get out of this rut. Until that happens, the banks will thankfully continue to profit from our indifference.