Banks save a fortune…by not passing on rate rises

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While the cost-of-living squeeze has been exacerbated by increasing interest rates and ­soaring inflation, those able to put money away are also being stung, analysis shows. Experts said big banks had failed to pass on rate hikes to savers as the chasm between high street institutions and the base rate grows further.

It has left investors infuriated, especially after Andrew Bailey, the Governor of the Bank of England, warned in the summer they were not getting their fair share.

Martin Lewis, the founder of, advised those with cash savings to “ditch and switch accounts”.

He added: “Top paying easy access savings accounts will likely rise but it can take a month.

“Most big bank savings will continue to pay diddly squat. The jury’s out on if top fixed savings will rise much or if this rise has already been baked in.” Yesterday Threadneedle Street voted to raise the base rate of interest by 0.75 percentage points to 3 percent – the single biggest increase in more than 30 years – in a move that ­confirmed Britain was in recession.

The grim news was another dose of harsh reality for tens of millions of households struggling to keep their heads above water.

Yet it should have prompted a smile from savers, as higher rates are supposed to yield better returns. However, analysis shows the average rate for an ­easy-access standard account still stands at a ­paltry 1.16 percent.

It means someone with £10,000 cash deposited would earn a miserly £116 in interest in a year. If the full Bank of England rate was passed on to customers they would earn £300.

Meanwhile, customers with a standard saver account with Lloyds – one of the Big Four big street institutions – earn a basement gross interest rate of 0.40 percent.

Financial advisor Kim Barrett said: “Savers are facing a difficult balancing act. You may be able to find better rates in a fixed bond. But with the cost of living so high, all savers are always losing money in real terms.”

The fact loyal savers have not been properly rewarded previously forced the banking watchdog to order high street institutions to start lending again – and not punish those who can afford to sensibly put away.

The Financial Conduct Authority contacted banks and building societies after ­former Chancellor Kwasi Kwarteng’s fiscal plans saw markets plunge into freefall.

The fallout from the turmoil saw banks respond by launching newer products with higher rates, but many were snapped up within hours. Many top savings accounts were pulled as canny savers rushed to open the best-paying accounts.

But there was some good news amid the gloom. From November 15 Investec Bank is offering 4.36 percent fixed for one year, while Aldermore Bank is offering 4.35 percent over the same term. Meanwhile, ­two-year fixed term cash deposit rates are ­available at 4.7 and 4.65 percent at the same institutions.

This year Anna Bowes, of Savings Champion, advised savers to rebel and move their money to try and protect ­themselves against some of the pain of inflation.

Savers using easy-access Isas can get an average rate of 1.26 percent. It means a deposit of £10,000 would earn £126 in interest over the next 12 months.

But with inflation currently at 10.1 percent its true value is diminished, reducing to just £9,197.

The highest paying easy-access Isa is from Marcus by Goldman Sachs, which pays 2.5 percent. But even this would see savers lose £690 to inflation, reducing the real value of a £10,000 pot to £9,310 after a year.

Experts urged those looking to secure a higher return and avoid being unable to access their cash to consider a one-year fixed bond, where the average rate is 3.34 percent. Current forecasts suggest the Bank of England rate could hit five percent next year.

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