Banks will be named and shamed by the financial watchdog after finding that less than 30pc of interest rate rises have been passed on to savers.
The Financial Conduct Authority (FCA) will publish a league table every six months of lenders’ easy access savings rates, ranking them from best to worst, and warned that it will take action if the worst offenders do not improve their offers to customers.
Under new consumer duty rules, which came into force on Monday, banks who provide the lowest interest rates in the market will be required to justify their positions by the end of August and if they are unable to do so, the FCA said it will take action.
It comes as the Bank of England is poised to raise interest rates to a fresh 15-year high on Thursday in a bid to tame stubbornly high inflation.
Following a review, the regulator found Britain’s biggest saving providers only passed through 28pc of interest rate rises to their easy access deposits between January 2022 and May this year, despite boosting rates on mortgage products.
The review also found that there is around £260bn sitting in savers’ accounts with interest rates as low as 1pc at some of Britain’s biggest banks.
Lenders have faced heavy criticism in recent months from politicians and campaigners for failing to raise rates for savers as fast as they have for mortgage products at a time when borrowers are struggling to repay their debts.
Earlier this month, the FCA held talks with executives at Britain’s biggest banks and warned them that they must accelerate rate rises on savings products.
The nine banks the FCA scrutinised were Lloyds, HSBC, NatWest, Santander, Barclays, Nationwide Building Society, TSB Bank, Virgin Money and The Co-operative Bank.
On Monday, the regulator also said it will review the timing of banks’ savings rate amendments each time the Bank of England changes its base rate and pledged to examine lenders’ processes on cash ISA switching to ensure savers get the best rates.
Sheldon Mills, head of consumers and competition at the FCA, said lenders paying the lowest rates need to provide an explanation within a month, and the FCA will take significant supervisory steps to make sure the largest firms and building societies are treating customers fairly.
He said that the City watchdog expects action on low savings rates immediately.
Mr Mills added: “[Lenders] need to ensure there is enough value being provided to customers.
“We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch accounts paying higher rates.”
FCA analysis found only 23pc of savers had switched their account in the last six months to get a better interest rate.
Mr Mills said banks need to ensure their switching process improves, and banks need to pass on saving rates closer to, but not necessarily as high, as the Bank of England’s base rate of 5pc.
Eric Leenders at UK Finance, which represents banks, said: “Savings rates have increased recently and there are a lot of good accounts on the market – UK banks have passed through a greater proportion of interest rate rises to savers than in other countries.
“Today’s commitments build on the work firms are currently undertaking, which includes contacting millions of customers about savings options, and will help customers to better understand their savings and the options available to them.”
The issue centres around banks’ net interest margin – the difference between what lenders charge borrowers and pay savers.
After the Bank of England raised its base rate to 5pc last month, lenders moved quickly to push up the interest they charge on mortgage products, but have been criticised for being much slower in increasing the rates they offer to savers.
Banks, in particular the taxpayer-owned NatWest and its subsidiary Coutts, have come under fire in recent weeks after Nigel Farage claimed he was de-banked because of his political views.
Dame Alison Rose, NatWest’s chief executive, last week stepped down and was followed by the boss of Coutts, Peter Flavel, a few days later.
The Treasury has tabled new rules that will force banks to give savers 90 days’ notice that their accounts will be closed. Banks will also now be required to communicate better with savers over why they are being de-banked.
Mr Mills said the FCA will look at the situation closely as part of any investigation into NatWest, but would not specifically comment on whether political pressure played a major part in the resignation of Dame Alison or Mr Flavel.
He added that the FCA believes that banks should not close accounts because of people’s political beliefs, adding that banks need to balance treating customers fairly and tackling financial crime.
The FCA’s first league table is expected to be published before the end of the year.
https://news.google.com/rss/articles/CBMiXWh0dHBzOi8vd3d3LnRlbGVncmFwaC5jby51ay9idXNpbmVzcy8yMDIzLzA3LzMxL2JhbmtzLWludGVyZXN0LXNhdmluZ3MtcmF0ZS1yaXNlcy1mY2EtcmV2aWV3L9IBAA?oc=5
2023-07-31 16:39:00Z
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