The banks have recently been condemned for failing to pass on higher interest rates to their customers who have money in savings accounts. Harriett Baldwin MP, who chairs the Parliamentary Treasury Select Committee, said: "The time for weak excuses is over."
MPs on the committee have been putting pressure on banks and building societies to give a better deal for savers as interest rates have risen. In addition, the Financial Conduct Authority (FCA) has also said it would soon look at whether the minimal rates offered to loyal savers were fair.
While an average new two-year fixed rate mortgage has an interest rate of 6.78%, a typical instant access savings account has an interest rate of only 2.62%, according to Moneyfacts - the financial information service.
Ms Baldwin described the subject as of "utmost importance" to the Treasury Select Committee, stating that: "If the high street banks continue to pay poor savings rates on their instant access accounts, they should make sure their customers know that better rates are available."
However, the banks have stressed that accounts for regular savers, or those that lock money in for a fixed period of time, gave much better returns than instant-access products. The average one-year fixed savings rate is currently just over 5%.
Previous figures from the Bank of England show that the public withdrew funds from bank accounts at a record level recently. In May there was £4.6 billion more withdrawn than paid into bank and building society accounts. That was the highest level since records began 26 years ago.
What do the experts say?
Nikhil Rathi, Chief Executive of the FCA which regulates the financial sector, said that a new 'Consumer Duty' would ensure that customers were made more aware of whether they could get a better deal from their current provider.
According to him: "We will expect firms to have a strategy to ensure their customers are adequately informed of available rates across their product set and how they may benefit from switching to an alternative." He also said that the FCA would be considering "the question as to whether savings accounts for loyal customers which pay close to zero offer fair value" when new regulations come into force at the end of the month.
Darren Bugg, Editor of The Customer
Service Blog, said “I have been warning about this issue for over a year, but
it seems that politicians have only just woken up to the problem. Maybe it’s
because most politicians put their money into stock market or property investments,
whereas ordinary members of the public put their savings into banks and building societies.
It just shows how out-of-touch they are, that they are only just discussing
this problem now, while interest rates have been shooting up for over 18 months.”
The table below shows the massive profits banks have made recently, as a result of not passing on the increase in interest rates to their customers.