Savers are finally moving their cash away from current accounts paying little to no interest – and in such great numbers that it is hitting banks’ profits.
Up to a third of savers keep their cash in current accounts only, many of which earn no interest.
But analysis of the major banks’ third quarter results showed that banks are having to pay out more in savings interest – though they still made large profits overall.
This is shown by major banks’ falling net interest margins – the difference between low savings rates and high mortgage and loan costs.
For example, NatWest Group, including NatWest, Royal Bank of Scotland, Ulster Bank and Coutts, said its net interest margin was 2.94 per cent in the months from July to September, 19 basis points lower than the same period the year before.
Adding up: Savers are beginning to earn more from big banks paying better interest rates
The banking group said this was ‘largely due to changes in deposit mix as customers shifted balances from non-interest bearing current accounts to interest bearing savings accounts,’ with lower mortgage rates also playing a role.
This meant NatWest Group’s net interest income fell to £2.68billion in Q3, down from £2.8billion in Q2.
Meanwhile net interest margin at Lloyds Banking Group, including Lloyds Bank, Halifax and Bank of Scotland, fell 6 basis points to 3.08 per cent in the third quarter of 2023.
The banking group said this was down to ‘expected mortgage and deposit pricing headwinds’.
HSBC UK’s net interest margin was 2.41 per cent in Q3 2023, down from 2.49 per cent in Q2, though the bank will not give more details about this until the end of the year.
Two major UK banks’ net interest margins rose in 2023, but even these firms noted that the balance was tipping in savers’ favour.
Barclays’ net interest margin rose in Q3, but the bank’s share price still fell as it announced it expected to end the year with a margin of 3.05 to 3.10 per cent, down from earlier predictions of 3.15 per cent – its current figure.
Barclays noted there had been a ‘search for yield in savings,’ but that its profits were outweighing that because of higher interest rates and the performance of a financial deal called a structural hedge, which smooths out how rapid base rate changes affect customers.
Santander’s UK banking arm had a net interest margin of 2.23 per cent in the first nine months of the year, up 9 basis points on the same period of 2022.
But the bank did note that net interest margin was ‘likely to peak in 2023’.
Slightly bucking the trend is building society Nationwide, which had a net interest margin of 1.66 per cent in its latest results – but for the first half of 2023 up to September, not Q3. That is up from 1.48 per cent the year before.
That is despite paying out £344million to members in May, in the form of £100 payments to eligible customers, which would have lowered its net interest margin.
