You can’t bank on be­ing treated fairly

Bor­row­ers are taking a hit as in­ter­est rates rise, so why are savers not reap­ing the ben­e­fits?

The Scotsman - - Smart Money With Gareth Shaw -

Just a few days ago, the Bank of Eng­land re­jected the op­por­tu­nity to in­crease the base rate for the sec­ond con­sec­u­tive month. It was a unan­i­mous de­ci­sion – per­haps un­sur­pris­ing, given that it had fi­nally taken the plunge in Au­gust and lifted the base rate be­yond 0.5 per cent for the first time since March 2009.

This de­ci­sion comes just af­ter the ten-year an­niver­sary of the col­lapse of Lehman Brothers and the be­gin­ning of a huge global fi­nan­cial cri­sis.

The Bank’s 0.25 per cent in­crease to the base rate, push­ing it up to 0.75 per cent, was the sec­ond in­crease in 12 months. And nat­u­rally, peo­ple want to know what it means for their sav­ings, in­vest­ments and house­hold fi­nances. The quick an­swer should be “good news for savers, bad news for bor­row­ers”.

A higher base rate makes it more ex­pen­sive for banks to bor­row money. Gen­er­ally, lenders in­crease the cost of bor­row­ing for cus­tomers, and raise in­ter­est rates on sav­ings to en­cour­age de­posits.

But Which?’s lat­est re­search sug­gests that’s only par­tially true. we tracked all an­nounced changes to in­stant-ac­cess sav­ings ac­counts and cash Isas, and changes to stan­dard vari­able rates (SVR) ap­plied to mort­gages, be­tween 2 Au­gust 2018 and 3 Septem­ber 2018.

In the month fol­low­ing Au­gust’s base rate rise, we found that just one in six in­stant-ac­cess sav­ings ac­counts have risen by the full 0.25 per cent in­crease – while half of mort­gage SVRS were hiked by the full amount.

What’s more, of the providers of­fer­ing both sav­ings prod­ucts and mort­gages, one in five had raised the cost of vari­abler­ate mort­gages by the start of Septem­ber while leav­ing sav­ings rates un­changed.

Our re­search found that, in to­tal, 66 per cent of the in­stan­ta­c­cess ac­counts avail­able to savers did not pass on the base rate in­crease. Some 18 per cent passed on less than the 0.25 per cent in­crease, and 16 per cent passed on the full amount. The trend was the same in the cash Isa mar­ket, where there was no in­crease in rates for 68 per cent of in­stan­ta­c­cess ac­counts, 17 per cent got less than the in­crease in the base rate, and 14 per cent en­joyed the full base rate rise.

De­press­ingly, lenders were eager to push up mort­gage rates.

Of 87 mort­gage lenders we an­a­lysed, 44 upped their SVR af­ter the base rate in­crease, and all but two of these opted to pass on the full 0.25 per cent.

We found eight providers that failed to in­crease their in­stant-ac­cess sav­ings rates be­fore 3 Septem­ber, but did im­ple­ment a 0.25 per cent in­crease to mort­gage rates. This means that cus­tomers on SVR mort­gages faced higher costs, while savers saw no in­crease to their re­turns.

Some providers im­ple­mented in­creases to the mort­gage SVR within a week of the base rate de­ci­sion, but didn’t plan to in­crease vari­able sav­ings rates un­til mid-septem­ber, or even Oc­to­ber – mean­ing cus­tomers paid more for their mort­gages for more than a month be­fore ben­e­fit­ting from in­creased in­ter­est.

An­other 12 providers raised their sav­ings rates, but by less than 0.25 per cent, even though their mort­gage rates in­creased by the full amount.

The same pat­tern of un­fair prac­tice played out af­ter the last base rate in­crease in Novem­ber 2017, Which? anal­y­sis found.

If you have your sav­ings with a high-street bank, things are even worse. Ac­cord­ing to data com­pany Money­facts, not a sin­gle high-street bank pays an in­ter­est rate on their easy ac­cess ac­counts equiv­a­lent to the 0.75 per cent base rate. The high­est rate on of­fer is a measly 0.55 per cent. And just three in­creased their rates by 0.25 per cent fol­low­ing the in­crease to the base rate.

Why do banks and build­ing so­ci­eties con­tinue to pull these cyn­i­cal tricks on their cus­tomers? When the op­por­tu­nity to ex­tract a smidge more in­ter­est out of them arises, they are light­ning-quick to move. Des­per­ate savers are look­ing at this rate rise as the line in the sand af­ter nine years of mis­er­able re­turns and the vast ma­jor­ity have been pe­nalised, not re­warded.

We’re now a decade on from the bank­ing cri­sis, where the rep­u­ta­tion of the bank­ing in­dus­try was at its low­est. Much has been done to im­prove things, but this be­hav­iour shows the kind of hypocrisy that has soured this mar­ket in the eyes of con­sumers.

There will be more rate rises com­ing in the fu­ture, as the Bank of Eng­land has been keen to warn. But look­ing at the way banks and build­ing so­ci­eties have re­acted with their lack­lus­tre re­sponse to pre­vi­ous rises, don’t hold your breath for fair treat­ment.

My ad­vice is to ditch your bank if it’s pay­ing you a naff rate and has screwed you over on the base rate rise. It’s a shame I have to say it at all.

The Bank of Eng­land’s de­ci­sion not to in­crease the base rate this month was not sur­pris­ing. More sur­pris­ing is banks’ re­luc­tance to pass on in­creases to savers

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