How big banks squeeze YOU to pocket up to £300 m from rising rates

BANKS will each rake in as much as £300million from last week’s rate rise as they try to wriggle out of passing on the boost to savers.

Money Mail can reveal that Royal Bank of Scotland (RBS) expects its income to soar by £300million by 2020 as a result of the Bank of England’s announcement.

Other banks are also expected to make millions more as they squeeze cash from loyal borrowers and current account customers. Four major banks and building societies — Lloyds, Barclays, Nationwide and TSB — have said they will pass on the interest rate rise to mortgage customers. On top of this, in the past few months firms have slashed perks on current accounts and hiked credit card rates.

Just last week Lloyds Banking Group revealed that its profits had jumped by almost a quarter to £3.1 billion in the first half of the year.

HSBC has also reported a 4.6 pc jump in its half-year profits to £8.3 billion.

RBS announced last week it would be paying its first dividend to investors in ten years after reporting a £1.8 billion profit.

Ewen Stevenson, chief financial officer and executive director at RBS, then told analysts that the firm expected to make even more money from rising rates.

Barclays and Santander reported declines in profits, but still made £1.7 billion and £903 million respectively.

Here, Money Mail explains how banks are raking it in while savers suffer.

MORTGAGE COSTS ARE CREEPING UP

MORTGAGE borrowers have enjoyed record-low interest rates for many years, with some homeowners able to lock into two-year fixed deals as low as 1 pc.

But as interest rates begin to creep back up, lenders are looking for ways to make money from their customers.

Around 1.3 million borrowers with mortgages that track the Bank of England base rate will already have seen their rate rise since last week, with some customers reporting that they had received emails and texts informing them that their bills were going to increase within minutes of the announcement.

A further 1.8 million are on what is known as their lender’s standard variable rate. Unlike with a fixed deal, which is protected from any rate rise for the duration of its term, banks and building societies are free to increase the cost of their standard variable deals at any time.

And less than a week after the Bank of England’s decision to increase rates, Barclays, Lloyds, Halifax, Nationwide, TSB, the Co-operative Bank’s Platform brand, Skipton BS and Danske Bank have already said they will pass on the entire 0.25 pc hike.

It means that anyone who does not realise their cheap fixed deal has expired, or is trapped on their lender’s standard variable rate (SVR) because they do not meet new affordability rules, will see their monthly mortgage bills jump.

Someone on the average standard variable rate of 4.72 pc, for example, will see their rate rise to 4.97 pc. On a typical £150,000 loan taken over 25 years, monthly repayments would increase from £853 to £874 — an extra £252 a year.

Banks have been accused of treating loyal customers like cash cows, with the gap between what lenders charge new customers and those on a SVR ballooning five-fold in the past six years.

For example, Yorkshire Building Society currently offers new customers with a 35pc deposit a 1.35 pc two-year fix, while those on its standard variable rate pay 4.99 pc. On a typical £150,000 home loan taken over 25 years, this is an extra £3,444 a year.

Switching to a fixed-rate deal will shield borrowers from rate rises, but if you have waited until now to do so you may find you have missed out on the best deals. Some banks and building societies began increasing fixed rates on mortgages as early as April when it was widely expected that the Bank of England would vote to increase interest rates in May. However, when no change was made, lenders failed to lower their rates again.

In January, borrowers looking to lock into a two-year fixed rate mortgage would have paid on average 2.35pc, according to data analysts Moneyfacts. In May, average rates for two-year deals had risen to 2.51 pc, and today they stand at 2.53pc. Five-year fixed rates have also risen but at a slower pace from an average of 2.87 pc in January to 2.91 pc in May, and 2.93 pc in July.

Around 28 mortgage lenders also increased their fixed rates in July ahead of last week’s rate rise, but many of the changes were small as lenders did not want to deter new customers.

Meanwhile, mortgage fees are creeping up. The average fee on a fixed mortgage deal is now £1,028, up from £1,019 at the start of the year, according to Moneyfacts.

CREDIT CARD RATES SOAR

CREDIT card interest rates have jumped to a near record high ove the past nine years.

When the Bank of England bas rate plunged to 0.5pc in 2009, the average credit card rate wa 15.72 pc, according to official figures. Yet despite interest rate remaining low, the average annual percentage rate (APR) has since rocketed by almost three percent age points to 18.26 pc.

It means that someone with typical £1,000 balance would pay around £183 in interest over the course of a year compared with £157 before — an extra £26.

And rates are continuing to inc up. Since March this year, Bank of Scotland, Halifax, HSBC, Lloyd M&S Bank, Post Office Money and Sainsbury’s Bank have an increased their credit card APR

by one percentage point from 18.9 pc to 19.9 pc. Experts say firms give a number of reasons, alongside wider interest rate rises, for pushing up rates.

For example, if the regulator finds evidence that credit card lending is hitting dangerous levels, firms may push up rates to put off the most risky borrowers.

The cost of transferring debt to an interest-free card has also increased. At the start of the year the average balance transfer fee was 2.04 pc, according to Moneyfacts. Today it’s 2.15pc. On a £2,000 balance this would mean paying £43 instead of £40.80.

Figures from the Office for National Statistics show households spent more than they earned last year for the first time since 1988. The average family went £900 in the red — yet banks keep encouraging us to borrow more on cards.

Citizens Advice has warned some banks are upping credit limits without customers requesting an increase.

Nearly six million people received an uninvited credit limit increase over a 12-month period, an average increase of £1,481.

CURRENT ACCOUNT PERKS PULLED

CURRENT accounts that pay interest and reward customers with cashback have become hugely popular among savers looking for ways to boost their returns. The average easy-access savings account currently pays around 0.21pc. By comparison, some current accounts, such as Nationwide’s FlexDirect account, offer savers returns of as much as 5pc on balances up to £2,500. However, after luring in customers with enticing deals, banks are increasingly paring back the perks they offer, slashing rates and hiking fees. Santander launched its popular 123 account in 2012 at a cost of £2 a month, or £24 a year. In return customers were paid up to 3pc on balances up to £20,000, as well as 1pc cashback on water, council tax and Santander mortgage repayments, 2 pc on energy bills and 3pc on mobile, broadband and TV bills.

It meant that if someone held the maximum £20,000 in the account they could earn more than £576 after taking into account the £24 annual fee and before any cashback was added.

But in January 2016 Santander more than doubled its monthly fee from £2 to £5. Customers were then dealt a second blow later that year when the bank slashed the maximum interest rate it paid customers from 3pc to 1.5pc on balances up to £20,000. It means that customers could now only earn up to £240 a year after fees and before cashback.

Other banks soon followed with cutbacks. Lloyds Bank’s Club Lloyds account previously paid up to 4 pc on balances up to £5,000. If customers kept the maximum £5,000 in their account they could earn £200 a year.

But in January 2017 Lloyds cut its rate to just 2pc on balances between £1,000 and £5,000, reducing the maximum return to £100 a year. Then, just as banks and building societies were preparing for a rate rise in July this year Lloyds lowered its rate again. It now pays customers just 1.5pc, or £75 a year.

TSB also reduced the interest rate on its Current Plus account from 5pc on balances up to £2,000 to 3 pc on balances up to £1,500. It reversed the decision as customers threatened to leave in the wake of the IT disaster in April.

In July, Bank of Scotland, part of the Lloyds Banking Group, cut the interest rate on its Vantage account from 2pc to 1.5pc on up to £5,000.

Halifax, part of the same banking group, last month announced it would be reducing the monthly payout on its Reward and Ultimate Reward current accounts from £3 to £2 a month from October 1.

Halifax, Lloyds and Bank of Scotland have also increased the fees they charge on their packaged current accounts by £2 a month. The Lloyds Platinum account now costs £19 instead of £17 for a deal that includes phone and breakdown cover.

Santander and Lloyds Banking Group declined to comment on whether they would be putting up their current account rates and perks in the wake of last week’s base rate rise.

OVERDRAFTS RAKE IN BILLIONS

BANKS made around £2.3billion from overdraft fees in 2016, according to the City watchdog.

The majority of this came from planned overdrafts, with just under a third made up of unauthorised overdraft charges.

This is where customers have accidentally slipped into the red without giving their bank warning and face hefty penalties.

According to the Financial Conduct Authority (FCA), around 13million Britons use overdrafts and in the worst cases pay as much as £450 a year in fees.

Currently, if customers exceed an agreed overdraft limit they are typically charged a set fee of between £5 and £10 per day, meaning they pay the same charges regardless of how much they go over their agreed limits.

Customers typically pay between 0.1 pc and 0.5 pc per day in interest for an agreed overdraft, but this soars to more than 10pc when it is unauthorised.

NatWest, for example, charges its Select current account customers a £6 monthly fee plus 19.89 pc interest for overdrafts agreed in advance.

If you borrowed £500 for a week you’d pay £7.75 — the equivalent of 81 pc interest, according to Moneycomms, the personal finance site.

Some banks are overhauling their charges as the City regulator investigates whether customers are being treated fairly. But not everyone is ending up better off.

Lloyds, for example, scrapped unauthorised overdraft charges in November. Customers now pay 1p for every £7 of overdraft used over £100.

Under the old rules, a Club Lloyds customer with an authorised overdraft would have paid £6.22 to borrow £250 for three days, according to Moneycomms. Now they pay just 63p. But those who need to dip more into their overdraft will pay more than before. Previously, borrowing £2,000 for 12 days would have cost £17.47. But now it’s almost double that at £32.76.

New rules introduced in May mean banks will have to send customers text message alerts when they go into their overdraft, be clearer about fees when people open accounts and offer online tools that explain charges more clearly.

The FCA says these proposals are expected to save customers up to £140 million a year. The regulator is also considering an overall price cap and banning daily fixed fees in favour of interest charges.