Banks with lowest savings rates to face ‘robust action’, warns UK financial watchdog | Banking

Banks with the lowest savings rates will face “robust action” within months if they cannot justify their pricing decisions, the City watchdog warned, as it laid out a 14-point plan amid claims banks are profiteering.

It will ramp up pressure on lenders who have kept easy-access savings rates low, while the cost of mortgages and other loans has soared.

The Financial Conduct Authority (FCA) said it would also begin monitoring how quickly banks pass on savings rates to customers following Bank of England interest rate decisions, and publish an “analysis” of firms’ easy-access savings rates where it will name those that continue to lag behind.

The action plan will also force lenders to encourage customers to search for higher rates.

It follows the FCA’s month-long review into the savings market, which found nine of the biggest savings providers – including Lloyds, NatWest, HSBC, Santander UK and Nationwide Building Society – passed on only about 28% of interest rate rises to easy-access savings accounts between January 2022 and May this year.

Even on fixed-term savings, which require customers to lock in their money for a set period of time, only 51% of the Bank of England’s interest rate rises were passed on to customers.

The FCA said those banks with the lowest savings rates will have to justify that they are offering fair value for savings customers by the end of August, and that it would take “robust action by the end of 2023 against those who cannot demonstrate fair value”.

The watchdog said its full range of powers – which include fines – would be at its disposal.

Sheldon Mills, the FCA’s executive director in charge of consumers and competition, 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”, he added.

“We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.”

The FCA’s chief executive, Nikhil Rathi, said in a letter to MPs this month that the regulator would consider cracking down on banks that appear to be profiteering from, or failing to quickly pass on, savings rates.

While the big four UK banks – Lloyds, HSBC, NatWest and Barclays – say they offer a range of products with higher returns, interest rates on easy-access savings accounts have broadly languished below 2%. That is despite the Bank of England base rate rising to 5%.

The interest rate rises have driven a surge in profits at many high street banks including NatWest and Barclays, both of whose earnings rose by about 30% in the second quarter, compared with the same period last year.

The Bank of England is expected to raise interest rates for a 14th consecutive time on Thursday, to 5.25%.