Banks are primarily in business to make juicy profits, a big chunk of which is then passed on to shareholders in the form of dividends as a way of saying thank you for their continued support as investors.
That is fine and dandy – capitalism in action – but these institutions surely also have a duty to treat customers with more than a modicum of fairness. A moral duty at the very least.
Sadly, as far as savings are concerned, the big banks have long given up on giving most customers a fair deal.
Savings rates: The big banks have long given up on giving most customers a fair deal
If Bank Base Rate is hiked up this week as some believe it will be, I bet you a four-fingered bar of Kit Kat that most will not pass on the full increase to savers. Only a wafer or two more of interest will come the way of savers, the rest held back to improve the banks’ margins and profits.
Of course, as our best savings rates tables highlight, banks are still occasionally prepared to reel in fresh customers with a half-decent savings rate, but their kindness is short lived.
Sooner, rather than later, these new customers will see their introductory bonuses expire and the interest rate they receive cut to the bone.
A case in point is Birmingham Midshires, a former building society but now part of the sweeping Lloyds Banking empire.
It is currently paying 1.35 per cent on its easy access Internet Saver account, a rate good enough to catapult it into our best buy table. But it includes a 1.15 per cent temporary bonus which will die after 12 months, leaving savers sitting on a rate of 0.2 per cent (assuming Bank Base Rate stays unchanged).
If the past is indicative of the future, most savers will stay put when the bonus expires even though it would pay them to switch. The result is easy profits for Lloyds.
Data from rate scrutineer Savings Champion shows that some of the country’s biggest banking brands are now paying what can only be described as derisory rates on many mainstream savings accounts which have long disbanded introductory bonuses.
Both HSBC and its online offshoot First Direct are paying 0.05 per cent on balances held in Flexible Saver and Savings Account respectively.
M&S Bank and Nationwide Building Society (yes, the supposedly cuddly and consumer focused Nationwide) are paying 0.1 per cent on Everyday Savings Account and Instant Access Saver Issue 6. No more than interest morsels.
The City’s regulator is now taking another look at how the market can be made more saver-friendly, especially towards long-standing (resolutely loyal) customers. Having introduced a number of measures a couple of years ago to stimulate competition (most of which have proved ineffective), it believes more needs to be done.
Its latest idea is the creation of a ‘basic’ savings rate that would be paid on all easy access savings accounts and cash Isas that have been open for more than a year. This single rate would be for individual providers to determine – with the regulator only stepping in if changes to the rate were deemed unfair.
If such a rate were given the green light, the regulator’s research indicates that long-standing savers could benefit to the tune of £300million per year in higher interest payments – with the big banks (with their large ‘back books’) footing most of the bill.
A basic savings rate is an interesting idea that deserves investigating although it is not without its flaws.
Interest rate rise? A possible hike in the base rate next week does not mean banks will automatically pass on the full increase to savers
Given the regulator has said it would be for individual savings organisations to set their own basic rate, I am sure most of the banks would respond by establishing it at the lowest level they could get away with.
Also, the introduction of such a rate may make savers more complacent than they are already because they could think basic rate equals a fair rate.
Switching is the obvious answer to counter the smidgen interest rates that most banks prefer to pay savers. But transferring savings from one provider to another is currently a minefield with application processes ranging from smooth to painful.
If switching savings could be made as easy as it is now to move bank accounts with a standardised procedure applied across the market, then maybe the days of 0.05 per cent interest could be drawing to an end. About time too.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS