Britain’s savers will miss out on more than £1billion this year because banks are refusing to pay fair rewards.
Big banks are holding record levels of the nation’s savings, with more than £1.2 trillion sitting in accounts.
But not one bank today pays interest above the rate of inflation on popular accounts — leaving loyal savers’ cash to languish.
Money grab: Big banks are holding record levels of the nation’s savings, with more than £1.2 trillion sitting in accounts
Last week we revealed how rates had slumped at the government-backed National Savings and Investments (NS&I) — denying customers close to £60million in interest rewards.
Writing in Money Mail today, former pension minister Baroness Ros Altmann calls for an inquiry into the savings scandal.
Industry experts say savers are being denied the returns they deserve because banks no longer need to offer decent rates to boost their spending.
Banks always used to follow the Bank of England’s base rate when setting their savings rewards.
And experts say the paltry rewards on offer today are the lasting legacy of the Funding for Lending Scheme (FLS) that let banks borrow from the Bank of England at rock-bottom rates to stimulate the housing market.
The scheme meant banks no longer needed to attract savers with decent interest rewards and led to more than 10,000 cuts to rates.
Money Mail analysis now shows that had banks kept their rates in line with the Bank of England’s, customers with standard savings accounts would be £1.1 billion better off this year.
The FLS ran until last year with banks allowed to borrow billions of pounds in loans they have four years to pay off.
Before it was introduced seven years ago, savers could get more than 3 per cent interest paid on money in easy-access accounts.
Yet now not one bank or building society is offering anything more 1.45 per cent — meaning a saver with £10,000 will get just £145 — less than half of the £300 they could have pocketed in 2012.
The Bank of England hiked the base rate from 0.5 per cent to 0.75 per cent last August, but banks did not follow suit with a similar rise to their rates.
Not one bank or building society is currently offering anything more 1.45 per cent — meaning a saver with £10,000 will get just £145 – less than half of the £300 they could have made in 2012
The average rate paid on a basic savings account is now just 0.5 per cent — up just 0.1 per cent since the base rate rise.
But banks are also holding £754 billion of savings cash in the easy-access accounts — compared to £462 billion a decade ago.
Poor rates offered by the big banks include 0.15 per cent from HSBC and 0.2 per cent from Halifax, NatWest and Lloyds.
Rachel Springall, of analysts Moneyfacts, says the miserly rates were costing savers dearly, adding: ‘High Street banks have had every opportunity to pass rate rises on to savers but they just don’t need to entice deposits.’
Former pensions minister Steve Webb, director of policy at insurer Royal London, says: ‘There must be a real question as to whether banks should go on describing accounts paying such pitiful rates of interest as ‘savings accounts’.
‘With inflation running at around 2 per cent, the huge sums of money sitting in these accounts is declining in spending power every day, and banks are taking advantage of the inertia of savers who don’t move their money around and don’t necessarily know where else to put their money.
‘With savers already under the cosh, there can be no excuse for banks increasing the margin between the base rate and the rate on offer in instant access account.’
The big banks are now also offering historically low mortgage rates — including 15-year deals fixed at 2.55 per cent and five-year fixes as low as 1.64 per cent.
Anna Bowes, of advice site Savings Champion, says the FLS had probably changed the savings landscape for ever by severing the link between the base rate and savings rates.
She says: ‘It is the savers who have suffered. Providers no longer needed to raise money from savers and this instigated a catastrophic reduction in savings rates.
‘For older savers in particular, who depended on the interest earned on their savings to supplement their retirement income, this was disastrous.’
It comes after Goldman Sachs cut the rate on the market’s best paying Marcus account by 0.05 per cent after holding steady at 1.5 per cent throughout the last year.
Justin Modray, of Candid Financial Advice, says banks were taking advantage of savers, and adds: ‘As the net tightens on banks making easy money from practices such as selling PPI and charging exorbitant overdraft rates, it seems they’re now targeting savers to keep the profits flowing.’
Peter Tyler, director of personal banking at trade body UK Finance, says providers will move rates in response to market conditions as they compete for savers’ deposits.