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Banks (Finance)

Banks Pass on Only a Quarter of Interest Rate Rises to Savers, FCA Warns

Strategic Insights

— 1 min read

Nine of Britain's biggest lenders passed on an average of 28% of base rate rises between January and May in their instant access savings offers, compared with an average of 80% in the five years through 2009, the Financial Conduct Authority (FCA) said in a report. This disparity has raised concerns about banks' transparency and fairness in transferring interest rate rises to consumers. The FCA has warned that it will take 'robust action' against firms that fail to demonstrate fair value in their savings rates.

Key Takeaways:

  • The FCA found that nine of Britain's biggest lenders passed on an average of 28% of base rate rises between January and May to savers, a significant decline from the 80% average in the five years through 2009.
  • The FCA has introduced a new consumer duty that requires banks to act in the best interests of retail customers, including ensuring fair value in savings rates.
  • Firms offering the lowest savings rates will be required to justify their rates under the new duty, and the FCA will publish a list of firms' instant-access savings rates every six months, ranking them from best to worst.
  • NatWest's decision to close Nigel Farage's account has sparked a political firestorm, and its chairman, Howard Davies, has faced calls to resign despite stating he will remain in post.
  • The FCA has supported Davies' decision to stay and has urged NatWest's board to achieve stability within the institution.

Statistics:

  • 9 out of 10 Britain's biggest lenders passed on an average of 28% of base rate rises between January and May.
  • Average of 80% of base rate rises passed on by lenders between 2004 and 2009.
  • 13 times the Bank of England has lifted interest rates in two years to tackle inflation.
  • Firms offering lowest savings rates will face 'robust action' if they can't demonstrate fair value under the new consumer duty.
  • By the end of the year, the FCA will publish a list of firms' instant-access savings rates every six months.

Sources:

  • Bloomberg - "Banks Pass on Only a Quarter of Interest Rate Rises to Savers, FCA Warns"
  • Financial Conduct Authority (FCA) - Report: "Consumer Duty"
  • "Banks face 'robust action' if they can't justify low savings rates under new FCA rule" (Financial Times)
  • "NatWest chairman 'will remain in post' after Nigel Farage row" (Sky News)

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