A Financial Conduct Authority review into the high-street banks’ savings rates have had a positive impact for savers, but one analyst warns that despite a “friendlier face”, better deals can be found elsewhere.
The FCA launched a review into the high-street’s cash-savings market in July 2023 to assess whether the big banks were fairly passing interest rate rises through to cash savers.
It discovered that savings rates “significantly lagged” increases in the base rate in the 18 months prior to July 2023, although the degree of passthrough rose faster in the latter months.
Banks earn profit on the gap between the interest they earn on customers’ cash deposits and the interest they pay on these deposits- called a ‘net interest margin’ (NIM).
Record profits from the likes of Barclays PLC (LSE:BARC) proved that banks were pocketing substantial sums by not passing through the full effect of the Bank of England’s interest rate hikes.
Since then, the FCA has laid out a 14-point plan to urge banks and building societies to pass on interest rate rises and communicate more effectively with customers.
It appears to have worked- between July 2023 and June 2024, the average easy-access savings rate has increased from 1.66% to 2.11%.
But Mark Hicks, head of active savings at Hargreaves Lansdown, voiced criticism of the data.
He said: “The high street giants have turned a friendlier face to savers over the past 12 months, but this doesn’t mean they’re your friends.
“You still need to run from the giants as quickly as possible, and find a more rewarding home for your cash – especially at a time when rates are falling."
Hicks agreed that the FCA review “seems to have made a real difference”, but the rates offered by the giants “are still languishing well below the most competitive savings accounts and cash ISAs on the market”.
According to This is Money, challenger banks Oxbury and Monument offer 4.8%-plus annual rates on an easy-access account below the 20% tax threshold.
Lloyds Banking Group PLC (LSE:LLOY)’s easy-saver, in comparison, offers just 1.3% on a sub £24,999 balance.