The City watchdog has vowed to ‘take action’ against banks that fail to pass on rate rises to savers, piling further pressure on the industry.
Nine of Britain’s biggest banks and buildings societies – including Barclays, HSBC and Nationwide – have been urged by the Financial Conduct Authority (FCA) to pay better savings rates on their instant access accounts.
Research by the regulator found that on average only 28 per cent of the Bank of England‘s base rate increases were passed on by lenders between January last year and this May.
The FCA said banks with the lowest rates have until the end of this month (August) to justify how their savings products meet a new Consumer Duty mandating ‘fair outcomes’ that came into force on Monday.
‘If they are unable to do so, the FCA will take action,’ it added.
The new rules overseen by the UK’s Financial Conduct Authority are aimed at preventing rip-offs and unexpected charges
The measures form part of the FCA’s 14-point plan designed to hold lenders to account.
Banks have come under mounting pressure from Chancellor Jeremy Hunt to pass on the benefits of higher interest rates to savers or make it clear where the best offers can be found.
In a bid to keep a lid on soaring inflation, interest rates have risen from 0.1 per cent in December 2021 to five per cent last month (July 2023).
The Bank of England on Thursday is expected to usher in its 14th consecutive rate hike.
That could see interest rates, which are at five per cent, increase by 0.25 or 0.5 per cent.
But while lenders have raised what they charge borrowers, there has been little increase in what is paid out to savers.
It comes after NatWest on Friday posted bumper profits by hiking interest payments on its loans.
The FCA’s plan also includes reviewing the speed at which deposit rates offered by banks change after each Bank of England decision and publishing an analysis of rates on easy access accounts every six months.
Sheldon Mills, executive director of consumers and competition at the FCA, said: ‘We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates.
‘We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case – with firms required to prove to us that they are offering their customers fair value.’
