More UK Banks Hike Savings Rates as Competition Heats Up

More savings accounts offer higher interest rates as a more competitive market emerges. However, regulatory intervention may still be needed to ensure customers are getting fair value, Britain’s Financial Conduct Authority (FCA) said on Friday.

The FCA is the UK’s watchdog that ensures financial services providers act responsibly and offer good value to consumers. It has been pushing banks to improve their customer service, cut call waiting times, end rip-off fees, make canceling products and opening new ones easier, and impose stricter penalties for misselling.

It has also been trying to help people work out their long-term financial goals and compare mortgage and savings rates to find the best deals. But, despite pressure on high street banks to boost their cash savings rates, the overall rate of interest paid by the industry remains low.

Last year, the FCA said that nine of the largest UK banks and building societies only passed on 28% of the Bank of England’s base rate rise to their accessible access savings accounts. It was a little better for notice and fixed-term savings, where 51% of the base rate increase was passed on, but that is still a long way below the average pass-through of 80% between 2004 and 2009.

HSBC has already started to pass on the latest interest rate rise and will be increasing its accessible access account from next week. It will return 2.25pc to balances of more than £3,000 and will offer an improved rate of 2pc for smaller amounts. TSB has also announced it will improve its Easy Access Saver account and children’s savings account from this week, with rates rising to 2pc on balances of more than £2,000.

As well as encouraging competition in the cash market, the FCA wants to see more people moving their money between different accounts so they can benefit from the best rates available. This could be from switching between fixed and variable rates or a savings account and a fixed-rate mortgage deal, a common way for borrowers to save money on their home loans by reducing their payments.

The FCA will also be looking at how quickly banks change their rates following a Bank of England base rate decision, as the central bank is expected to continue to raise interest rates in the future. This will force lenders to justify their decisions, as a requirement of new consumer duty rules that came into force at the end of July. Those that cannot demonstrate they are offering good value will face “robust action” by the FCA. Earlier this month, the regulator told the bosses of nine banks and building societies, including HSBC, Lloyds, NatWest, and Barclays, to spell out whether their rates were fair value for customers by the end of August. The banks must show that their savings and cash products provide a “fair and affordable return” on their funds or face a fine.