Higher interest rates are a double-edged sword. In theory, borrowers lose while savers win. So last Thursday’s increase in the Bank base rate to 0.5 per cent should have been welcomed by some, frowned upon by others.
Yet, it’s not as black and white as the theory suggests. Some borrowers will be unfazed by higher interest rates, while many savers will feel no less outraged than they did a week ago.
Why? Well, many homeowners are now benefiting from their lockdown shrewdness when they took advantage of record low interest rates to lock into fixed-rate home loans.
Piggy in the middle: Despite base rate rises, the savings institutions are not playing ball
So the doubling in base rate will not impact on one of their major household expenses – a relief in light of soaring energy bills (some households are still enjoying tariffs fixed before energy prices started to move skywards).
Only those with variable rate home loans will incur the pain of higher interest rates as they feed through to their mortgage repayments. Credit card borrowers will also feel the heat as interest charges rise.
For savers, many of whom are elderly, higher interest rates should mean an uptick in the income they obtain from the cash they have squirrelled away in a bank or building society account.
But as we have been reporting since December’s base rate rise to 0.25 per cent, the savings institutions are not playing ball. Hence our Give Savers A Rate Rise campaign – a quest to pressure providers into giving their savers the full benefit of the rate rises.
With the notable exception of some of the country’s local building societies, rate increases have been rarer than hens’ teeth.
According to rate scrutineer Savings Champion, only a fifth of all providers have tickled up rates since December – and many of these have only applied increases to selected accounts. Savers with money in instant access savings accounts or cash Isas have been hung out to dry.
By way of example, the interest rate on both Santander’s Easy Isa and Everyday Saver accounts remains at 0.01 per cent, the rate paid when base rate notched up from 0.1 per cent to 0.25 per cent in December. In pounds and pence, that’s £1 of interest on every £10,000 of savings balances.
Of course, other big banks – NatWest, Lloyds and HSBC – are paying the same derisory rates on similar accounts. But I single out Santander only because its financial results, released last week, highlight how banks are profiting from the clamp they have applied to savings rates.
In announcing 2021 profits of £1.85billion, Santander said a big contributory factor was its decision to widen the difference between what it makes from charging borrowers and paying savers.
This margin, it confirmed, had increased last year from 1.63 per cent to 1.92 per cent, with savers feeling the pain the most through rock-bottom interest rates.
With a number of further base rate rises in the pipeline this year, I imagine Santander will take the opportunity to widen this interest margin further. Indefensible? Well, from a business perspective, the answer is no – Santander, like all the big banks, is out to make as much profit for its shareholders as it can.
But from a consumer point of view, the answer is a big fat yes. Santander is taking advantage of the fact that most customers will not jump ship because none of the other high street banks are offering anything much better. Like Santander, they are busy racking up profits. Egregious behaviour.
New rules are welcome
We have long campaigned to keep access to cash on our high streets – whether it is through bank branches, post offices, a national network of free-to-use ATMs or shared bank branches.
So we welcome the new rules, aimed at ensuring communities are not hung out to dry when their last bank branch shuts.
But as we report opposite, the new regime is not without major fault lines.
Who’s to blame? Yes, those damn profit-crazed banks again.
