Lloyds Banking Group PLC (LSE:LLOY) and NatWest have joined HSBC in offering some of the UK’s top interest rates on savings accounts, a move analysts tipped as a win all round.
Lloyds and NatWest Group PLC (LSE:NWG) have begun offering 6.25% and 6.17% interest respectively on regular savings accounts, after HSBC Holdings PLC's (LSE:HSBA) online arm First Direct launched a 7% deal yesterday.
Although savers have to commit to minimum monthly deposits, interest on regular-saver accounts outshines those on the best fixed-rate bond, notice and easy access deals, which offer up to 5.81%, according to Moneyfacts.
Moving money to increasingly improving savings accounts is a win all-round, analysts said, as consumers secure additional income while helping to fight against rising inflation.
Rates on savings accounts have started to improve since the Bank of England hiked UK base interest to 5% last week, with better deals marking the flipside of rising mortgage costs.
According to Shore Capital analysts, hiking savings rates – a hot topic among politicians and large banks – can benefit the UK in two key ways.
“Firstly, it benefits customers who may be struggling as a result of the cost-of-living crisis by boosting their incomes,” the analysts said.
“Secondly, it helps in the fight to reduce inflation by ensuring the impact of higher base rates is fed through to depositors thus encouraging saving and reducing spending.”
Though the actual amount earned from better rates will vary since many are unlikely to be unable to deposit significant amounts, the analyst noted a trend in people switching accounts had already appeared.
Chancellor Jeremy Hunt told UK lenders on Monday that he expected higher interest rates to be passed onto customers, a move Shore Cap anticipated should happen since banks are likely enjoying “peak” margins after hiking mortgage rates.
So while banks have been reluctant to pass on the full benefit of rising rates to savers, the Shore Cap analysts said this means they are ready and able to improve savings rates now.
“Most banks are now earning returns at or above their cost of equity [...and] we are already seeing some evidence” of savings being passed on at a large scale.”