Banks Have Questions to Answer Over Interest Rate Rises for Savers, Says Minister

The City of London financial district can be seen as people walk along the south side of River Thames, in London, on March 19, 2021. Henry Nicholls/Reuters

Banks have questions to answer about how quickly they have been passing on interest rate rises to savers, a Cabinet minister has said.

Last week, the Bank of England raised interest rates from 4.5 to 5 percent, a level last seen in April 2008.

It was the 13th consecutive rate increase in 18 months, putting increased pressure on mortgage holders.

But questions have also been asked about the limited benefits that have accrued for savers.

People walk past the Bank of England during morning rush hour, in London, Britain, on July 29, 2021. Henry Nicholls/Reuters, File Photo

Speaking to LBC radio on Wednesday, Work and Pensions Secretary Mel Stride said: “There’s certainly a question to be asked about the speed at which banks pass on the benefits of these interest rates. That’s a way of saying it’s definitely something to be looking at.”

He said Chancellor Jeremy Hunt “has had the banks in for some very serious conversations about this,” and the Financial Conduct Authority is also “looking at exactly those kinds of issues.”

Stride added: “I think the general feeling is that there is a question mark hanging over whether they are passing on these benefits to savers quickly enough.

“And what I’m reassuring your listeners of is that we are absolutely looking at that.”

‘Profiteering’

The opposition Labour Party has pushed the government to intervene to ensure that banks pass on interest rate rises to savers.

Labour’s shadow communities secretary Lisa Nandy told Sky News on June 25: “It can’t be right the banks are passing on interest rate rises to mortgage payers, and not to savers.”

“If you make it more attractive for people to save, then it does have a significant effect in cooling inflation,” she said.

On Monday, Labour former Treasury minister Dame Angela Eagle said that the banks are “being very slow to pass on interest rate rises to those who are saving whilst they are passing almost immediately interest rate rises on to those who borrow.”

She added that the banks this quarter made over £4 billion extra on the differential between these.

Chancellor of the Exchequer Jeremy Hunt speaking during the British Chambers Commerce Annual Global conference, at the QEII Centre, London, on May 17, 2023. Jordan Pettitt/PA Media

In response, the chancellor acknowledged that “it is taking too long” and “there is an issue there.”

Hunt said: “I raised that issue in no uncertain terms with the banks when I met them and I’m working on a solution because I think it is an issue that needs resolving.”

He defended the government’s record on supporting people, adding: “One thing that can definitely happen better than it is now is passing on increases in the base rates to savers.”

He added, “If more people are encouraged to save, that is technically counter-inflationary and is something to be encouraged.”

‘Absolutely Outrageous’

Martin Lewis, founder of MoneySavingExpert.com, said it seems “absolutely outrageous” that the rates savers are sitting on are lagging behind the rates being charged to borrowers.

Speaking on ITV’s Good Morning Britain on June 23, Lewis said he had suggested lenders should be stopped from increasing their profits on the back of interest rates going up.

He said: “They’re putting borrowing up, but they’re not putting savings up by the same amount. That seems absolutely outrageous to me, because when the banks were struggling in 2007/2008, we, the state, the taxpayer, bailed them out.

“We, the state, the taxpayer are struggling right now. They should be doing what they can in return, because they’re too big to fail and, now, they don’t want us to fail. They should be doing what they can in return.

“So to be increasing profits, increasing margins at this point seems absolutely wrong. It’s profiteering.”

Lily Zhou and PA Media contributed to this report.