- Lloyds, Barclays, HSBC and NatWest CEOs Defend Low Savings Rates
- Bank executives say consumers want good savings habits, not easy access to cash
- CFOs Promote Regular Savings Deals, Not Easy Access Accounts
Depositors should get used to the low interest rate on easy-to-reach accounts, as consumers clearly don’t want higher rates, major bank executives say.
Today MPs from the Treasury Select Committee questioned the bosses of four major banks why they are so slow in raising savings rates but rapidly raising the cost of mortgages and loans.
According to financial experts Moneyfacts, the average easy-to-access bank account is still paying less than 1% interest per year, despite a series of base rate hikes by the Bank of England.
Banks say their customers are calling for savings deals to encourage good savings habits rather than pushing for better rates on easy-access accounts.
But banking bosses, representing nearly all British households, said consumers don’t really want higher rates on easy-to-reach accounts, despite it being the UK’s most common savings deal after premium bonds.
Instead, consumers want to be encouraged to save through much less common regular savings deals, bank tycoons said.
Regular savings accounts are special savings accounts usually reserved for bank customers with checking accounts.
They often have higher interest rates than easy access accounts, but they limit how much you can save each month. The rate is often reduced if any money is withdrawn during the life of the account.
The big banks have come under fire after a series of increases in the Bank of England’s base rate, now at 4 percent, which is factored into mortgage and savings rates.
For example, HSBC UK charges homeowners interest of 6.79% at its standard variable rate, the rate paid by those whose mortgages have expired but have not opted for a new deal. This level of 6.79% has almost doubled from 3.54% a year ago.
But the same cannot be said for the bank’s Easy Access Flexible Saver program, which pays just 0.9%.
Today, four bank executives apologized for not making easy-access deals in line with the base rate, saying savers instead want higher regular rates for savers.
They also calculate interest differently, which means that the total rate may not match the percentage that customers think they will earn, as we explain below.
Banks promote regular savings offers
Barclays UK Chief Executive Matt Hammerstein told MPs: “We have spent a lot of time with customers talking to them about what they expect from us as the base rate increases, in particular with regard to savings.
“They told us very clearly, ‘We’ve lost the savings habit and we need to get it back and we need your help.’
“Simply increasing the base rate on an Instant Access account was probably the wrong decision as it would provide very little incentive. [to save]they wanted to see targeted products that would give them more incentives.”
This point of view was supported by other heads of banks.
NatWest Group CEO Alison Rose said: “We’re really focused on helping our clients through real hardships and helping them develop savings habits.”
Rose spoke about a regular savings deal that pays 5.12% per year, available at two banks under the auspices of the NatWest Group, NatWest and RBS.
Accounts pay this rate on the first £5,000 in the account and then 0.65% on anything above that amount.
HSBC UK chief executive Ian Stewart said: “We have been trying to engage our customers in sustainable savings. We have a product that pays up to 7% for regular savings.”
This rate is offered by HSBC-owned First Direct and allows depositors to pay a maximum of £300 per month, but they cannot withdraw money or the account will be closed and they will only receive 0.65% per annum.
Lloyds Banking Group chief executive Charlie Nunn said the banks in the group – Lloyds, Halifax and Bank of Scotland – regularly made deals with depositors, paying between 4 and 5 percent a year.
Inequality: The average easy-access bank account still pays less than 1% per annum on average despite a series of BOE base rate hikes.
Boost for banks
The UK has had a low base rate and low interest savings for over 10 years and is now in a cost-of-living crisis, so consumers may need to be encouraged to start saving.
But shifting the focus away from easy access to regular savings rates…
Credit: www.thisismoney.co.uk /