Beware the robber banks getting away with BILLIONS

When investment managers tell you that bank shares represent a steal, and that the good times are here for the banking industry as a whole, you know they know something we haven’t really thought much about. 

Namely, that as the economy teeters on the edge of recession, inflation rages like a goaded bull and energy bills are heading ever higher, the banks are lining their pockets at our expense. Profits uber alles. They’re smiling…all the way to the bank. 

Even the Government is on the side of the banks. Last week, it announced a number of measures – the ‘Edinburgh’ reforms – designed to free the banks from some of the regulations introduced in the aftermath of the 2008 financial crisis to protect customers. 

Criminal: The banks are lining their pockets at our expense – they’re smiling… all the way to the bank

All part of a grand plan to turn the UK’s financial services sector into a world leader, sparking economic growth. Inspiring? Maybe. Foolhardy? Only the future will tell, but don’t rule out at some stage in the future another financial crisis a la 2008 as the banks are consumed by greed. 

While rising interest rates are generally good for savers and bad for borrowers, they represent marvellous news for the banks. And with the Bank of England poised to push up base rate on Thursday from 3 per cent to 3.5 per cent – maybe even 3.75 per cent – the bankers are going to be rubbing their hands with glee. 

More vigorously I would say than at any time since the financial crisis of 2008 when the industry teetered on the verge of implosion, forcing the Labour government to bail out both Lloyds and Royal Bank of Scotland at taxpayers’ expense. 

Higher interest rates are like gold dust for the banks because it gives them greater scope to make money from the difference they charge borrowers in mortgage or credit card interest and the interest they pay savers – resulting in billions of pounds in profits every year. 

When base rate plunged to 0.5 per cent in the wake of the 2008 financial crisis, to 0.25 per cent in the aftermath of the EU referendum vote and then to 0.1 per cent as the UK went into lockdown, the opportunity for banks to make money from the interest differential between the rate charged to borrowers and that paid to savers was severely circumscribed.

But the proverbial worm has turned since this time last year when the Bank of England started to ratchet up base rate – eight times in less than a year, nine times if it signals another rise on Thursday. As base rate has pushed up from 0.1 to 3 per cent, the chance for banks to widen the gap (the net interest margin) between what they pay savers and charge borrowers has increased. In simple terms, the higher the net margin, the fatter a bank’s profits. 

‘Bank customers are being milked,’ says Baroness Altmann, a leading financial expert and consumer champion. She believes the elderly are being particularly disadvantaged by this widening interest margin because they are primarily savers (not mortgage borrowers) – and tend to have money in accounts where interest rates are suppressed. 

Altmann also says elderly customers are being marginalised by having their local branch shut, making personal banking more difficult. Since the start of the year, the banks have announced 619 branch closures – and more are planned for the year ahead. Earlier this month, HSBC said it would next year shed a quarter of its branch network in response to more customers using its services online. 

Altmann adds: ‘Bank customers, especially those who are unable to afford – or work – smartphones are being left out of the equation. In my view, there could be a strong case for making an age discrimination claim, based on some of the changes being made by the banks.’ 

Analysis by data scrutineer Moneyfacts on behalf of The Mail on Sunday confirms how the big banks have exploited interest rate rises in the past year to their own advantage. Rachel Springall, finance expert at Moneyfacts, has taken the standard variable mortgage rate (SVR) that the big banks – Barclays, HSBC, Lloyds, NatWest and Santander – and Nationwide (the country’s largest building society) were charging at the beginning of December last year. 

This is before base rate moved up from 0.1 per cent to 0.25 per cent on December 16. She has then compared it to the rate now being charged. She has then taken the same dates and compared what the banks were paying a saver with £10,000 in an easy access account. 

The results – see table above – show that while rates on SVR mortgages have increased by between 2.65 and 2.9 percentage points, the equivalent increase in savings rates has been meagre. 

Rates have increased by between 0.39 and 2.92 percentage points. Over the same period, base rate has increased by 2.9 percentage points. In other words, while borrowers with SVR-linked mortgages have often borne the full brunt of the base rate rise, some savers with a need to have easy access to their money have enjoyed less than a fifth of the increase.

Says Springall: ‘A fair few of the big banks have passed on every base rate rise to their [variable rate] mortgage customers, but not to loyal savers. There are providers out there – challenger banks for example – which are boosting savings rates to levels way above those from high street banks. 

‘But these are usually online accounts and not available to vulnerable, more elderly savers who have no desire to go online. 

‘They prefer to stay with the bank they have grown up with.’ Anna Bowes, co-founder of Savings Champion, says it is ‘bonus time’ for the banks as ‘they cash in on charging much higher interest on their mortgages while keeping the rewards for their savers to a minimum’. 

She adds: ‘There’s little festive spirit among the banks. It’s time for savers to vote with their feet and move their savings to a provider that will pay a competitive rate of interest.’ 

Bowes says that someone with £50,000 in a Santander Everyday Saver account paying 0.4 per cent would currently earn £200 of annual interest. If they were to opt for the best unlimited access rate available of 2.81 per cent (Al Rayan Bank), they could earn an additional £1,205 a year in interest. 

Better deal: Peter and Jennifer Wall

Peter and Jennifer Wall, long-term customers of Lloyds Bank, have been quietly shifting their savings away from the bank in search of higher rates. 

Peter, a 75-year-old retired managing partner of a firm of solicitors in Birmingham, and Jennifer, 73, have money in an online saver account with Lloyds that pays 0.5 per cent. But as interest rates have risen they have realised that rival savings institutions are paying far more – even when the account is branch based. 

‘Our local Lloyds branch is in Harborne,’ says Peter. ‘I use it infrequently, but opposite is the building society, the West Brom. It is paying 2.4 per cent interest on a limited access savings account. 

‘If West Brom can offer such a compelling rate in branch, with all the overheads associated with running a high street network, why can’t Lloyds?’ 

The best branch-based account from Lloyds is Club Monthly Saver (5.25 per cent, fixed for a year) although it limits monthly contributions to £400 over 12 months. Also, only existing Club current account customers are eligible. 

On Friday, the banks were invited to respond to the accusation that customers are being exploited as interest rates rise.

HSBC said: ‘Our savings accounts are not directly linked to base rate. We have taken the opportunity to increase rates six times this year, including Regular Saver (from 1 to 5 per cent), Fixed Rate Saver (0.15 to 3.5 per cent) and Flexible Saver, from 0.01 to 0.65 per cent.’

Lloyds said it has increased savings rates four times this year – and offered interest-free overdrafts to 130,000 customers.

This post first appeared on Dailymail.co.uk