Banks have been accused of giving savers a “raw deal” after analysis found that nine out of ten did not pass on last year’s interest rate rise in full.
This failure to increase returns in line with the quarter point increase in the Bank of England (BoE) base rate is costing savers an estimated £600m per year in loss of interest, the equivalent of almost £15 for every person with a savings account, according to Which?.
The research came as the BoE is expected to increase the cost of borrowing again in May, bringing base rate to 0.75%. Savers have experienced a decade of “rock-bottom” returns after the bank began reducing rates in 2008 to try to mitigate the effects of the financial crisis.
Banks have further been accused of ‘double standards’ after the figures revealed that more than half had increased their standard variable rate mortgages after the base rate increased. Which? Also highlighted how Barclays, Halifax and TSB had applied a rise of more than 0.2% to at least one mortgage offer, but only a maximum of 0.15% to savings accounts.
However, Teachers Building Society and Tesco Bank hit mortgage holders with the full 0.25%, while passing 0.15% to savers.
Which? head of money online Gareth Shaw said: “The last base rate rise saw clear double standards from some financial institutions, hiking the bills of mortgage holders while denying savers the full benefit and withdrawing some of the most competitive deals altogether.”
Fairer Finance managing director James Daley further commented, adding: “Savers have endured years of ultra-low interest, so it’s particularly crushing that once the BoE finally raised rates for the first time in a decade, most banks did not pass the benefit on. Banks need to strike a fair balance between savers and borrowers, not use movements in interest rates as a chance to bolster their profit margins.”
A spokesman for UK Finance, which represents the banks, said: “Any change in interest rates will lead banks to balance the increased cost of customer borrowing with the savings returns to ensure that products are competitive. Mortgage and savings rates are determined by a number of factors and external costs that do not correlate to the base rate when interest rates are as low as they have been for several years.”
Which? has suggested that if the banks again fail to pass on an increase in the base rate next month, savers should consider using any surplus funds to overpay on their mortgage instead of saving.
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