The Financial Conduct Authority has said it will require the largest banks and building societies to explain the pace and extent of how they pass through base rate changes to savers.
In a statement yesterday (June 28) the regulator said it will report on how well the cash savings market is supporting savers to benefit from higher interest rates.
Banks and building societies have come under pressure in recent months over the speed at which they are passing base rate increases through to savers.
Earlier this month, the Bank of England increased the base rate to 5 per cent in a further bid to tame inflation.
But while banks have been quick to pass this increase through to mortgage borrowers - with the average two-year fixed-rate now sat at 6.37 per cent - financial institutions have been slower to pass this increase in interest through to their savers.
According to Moneyfacts, the average one-year fixed savings rate sits at 4.71 per cent today, but the average easy access savings rate sits far below at 2.37 per cent.
At the beginning of June, Nationwide, TSB, Santander and Virgin Money wrote to MPs after the Treasury committee requested further information on how they set interest rates on their savings accounts.
MPs had raised concerns that the big banks were squeezing record profits from their loyal savers in a high interest rate environment.
At the time, Nationwide explained that it was able to offer more competitive rates on savings accounts with longer fixed terms.
“With instant access funds, we can’t lend them so easily to mortgage borrowers, who generally seek fixed term lending. As a result, the market tends to offer higher rates for fixed term deposits because of the certainty and stability they provide,” Nationwide’s chief executive, Debbie Crosbie said.
Santander also pointed out that the base rate is not the only factor used to determine the saving rate paid on an account.
Likewise, Virgin Money said that its comparative market position was considered when setting saving rates.
It said this was to ensure it does not price products that risk either excess volumes that result in poor customer service outcomes, or move the bank outside of its targeted liquidity levels.
Meanwhile, the FCA also said yesterday that it has joined forces with other regulators, including Ofcom and Ofgem, to call on firms to support customers struggling with the increased cost of living.
FCA chief executive, Nikhil Rathi said: “We’re monitoring the experience of consumers closely – including how savers are benefiting from higher interest rates. We’ll take swift action if firms aren’t doing all they should to help people dealing with tighter household budgets.”
jane.matthews@ft.com
