Bank bosses defend savings rates to MPs, saying customers don’t want more interest on easy access

Savers should get used to low interest on easy access accounts, big bank bosses have said – because consumers apparently don’t want better rates.

Today MPs on the Treasury Select Committee grilled bosses of four high street banks on why they were so slow to increase savings rates, but quick to hike mortgage and loan costs.  

The average high street bank easy access account still pays interest of less than 1 per cent a year despite a series of base rate hikes from the Bank of England, according to financial experts Moneyfacts.

Banks say their customers are calling for savings deals with encourage good savings habits, not pushing for better easy access account rates

But bank bosses representing almost all UK households said consumers actually don’t want increases to easy access account rates, despite these being the most common savings deal in the UK after Premium Bonds.

Instead, consumers want to be encouraged to save with the far less common regular saver deals, bank bigwigs declared.

Regular saver accounts are special savings deals, usually reserved for banks’ current account customers. 

They often have higher interest rates than easy access accounts, but they limit the amount that can be saved each month. The rate is often lowered if any money is withdrawn during the account’s term. 

Big banks have come under fire following a series of hikes to Bank of England base rate, now 4 per cent, and which is factored in to mortgage and savings rates.

For example, HSBC UK charges 6.79 per cent interest to homeowners on its standard variable rate – the tariff paid by those whose home loan term has ended without them choosing a new deal. That 6.79 per cent rate has almost doubled from 3.54 per cent a year ago.

But the same cannot be said for the bank’s Flexible Saver easy access deal, which pays just 0.9 per cent.

Today the bosses of four banks excused not putting up easy access deals in line with base rate – by saying savers want better regular saver rates instead.

They also calculate interest differently, meaning that the headline rate may not match the interest customers think they will earn – as we explain below. 

Banks push regular saver deals

Barclays UK chief executive Matt Hammerstein told MPs: ‘We spent an extensive amount of time with customers, talking to them about what they expected from us as base rate went up, in particular with respect to savings.


Would you rather have better rates on easy access accounts or regular saver deals?

  • Easy access accounts 15 votes
  • Regular saver deals 0 votes

‘What they said to us very clearly was: “We’ve lost our savings habit, and we need to rebuild it, and we need your help”.

‘Simply incrementing up the base rate on an instant access account probably wasn’t the right thing to do as it would give very little incentive [to save], they wanted to see targeted products that gave them more incentive.’

Other bank bosses echoed this view.

NatWest Group chief executive Alison Rose said: ‘What we are really focused on is helping our customers where there is real hardship, and helping them develop savings habits.’ 

Rose highlighted the regular saver deal paying 5.12 per cent a year, available from two banks under the NatWest Group umbrella, NatWest and RBS.

The accounts pay that rate on the first £5,000 in the account, and then 0.65 per cent on anything above that. 

HSBC UK chief executive Ian Stuart said: ‘We have tried to engage our customers into consistent savings. We have a product paying up to 7 per cent, for a regular saver.’

This rate is offered by HSBC-owned First Direct, and allows savers to pay in a maximum of £300 per month – but they cannot make any withdrawals or the account will be closed and they will get only 0.65 per cent interest. 

Lloyds Banking Group chief executive Charlie Nunn said the banks in the group – Lloyds, Halifax and Bank of Scotland – had regular saver deals paying between 4 and 5 per cent a year.

Disparity: The average high street bank easy access account still pays interest of less than 1% a year despite a series of base rate hikes from the Bank of England

Disparity: The average high street bank easy access account still pays interest of less than 1% a year despite a series of base rate hikes from the Bank of England

Boost for the banks

The UK has had over 10 years of a low base rate and low interest on savings deals, and is now in a cost of living crisis, so perhaps consumers do need encouragement to start saving.

But shifting the emphasis from easy access account rates to regular saver rates is certainly very convenient – for the banks.

Firstly, the way regular saver deals work means the interest rate they pay looks better than it really is.

That is because of how regular saver deals work, where you put a bit of cash aside at intervals and the interest is worked out daily or monthly, not yearly.

For example, take the 7 per cent yearly interest rate on the regular saver deal from First Direct, part of HSBC.

 I do think there is a bit of misunderstanding with the public. Some people, after a year, don’t know why they haven’t got [the interest] they thought they would

Rachel Springall, Moneyfacts 

At first glance, someone putting in the maximum of £300 a month might expect to earn £252 a year in interest, as that is 7 per cent of the £3,600 they put aside over 12 months.

But most regular savers do not pay interest yearly. Instead, they pay a fraction of that headline interest rate daily or monthly.

This means someone with a maxed-out First Direct regular saver would actually get just £136.50, or 54 per cent of £252, in yearly interest.

They will not earn the maximum 7 per cent on their cash until the very final month of the year, and earn a fraction of that every month up to that point.

To be fair to banks, this is all explained in the small print of savings deals, but it is very easy for savers not to read this and get tripped up.

Rachel Springall, of Moneyfacts, said: ‘This is spelt out in banks’ documentation, but I do generally think there is a bit of misunderstanding with the public. Some people after a year don’t know why they haven’t got what they thought they would do, with interest.’

Secondly, easy access accounts are much more flexible for consumers than regular savers. Easy access deals, as the name suggests, allow cash to be withdrawn and deposited quickly – though many deals do come with strings attached. 

But regular saver deals require cash is put away every month in order to earn any interest. Most regular saver products slash interest rates if they are closed within their lifetime, normally 12 months, or if any cash is taken out in that timeframe. 

Beware the savings tax trap 

 Many savings deals pay more interest than they once did – but these rising returns also mean many more savers paying tax.

Any savings interest basic-rate taxpayers earn above £1,000 a year – the personal savings allowance – is taxed.

Higher-rate taxpayers have an allowance of £500, while additional rate taxpayers don’t get anything. 

Thirdly, focusing on regular saver deals is great for banks because they encourage customers to stay loyal. This is because consumers have an incentive not to close the deals, or they risk losing the top interest rates.

Finally, banks can save money on interest payouts with regular saver accounts. This is because most have limits on how much cash can be deposited every month, and also because regular savers have never historically been that popular.

These deals have tended to have had most uptake among low-income people with an expensive event to save for, such as Christmas or a holiday.

‘I think there is much more awareness of easy access accounts,’ said Moneyfacts’ Springall, but added that regular savers might well be the right product for many bank customers.

This Is Money has asked Barclays, NatWest Group, Lloyds Banking Group and HSBC for how many customers have their easy access products compared to the generally less common regular saver. All refused to answer, saying this is commercially sensitive information.

Do banks profit from low savings rates?

None of the bank bosses could tell the Treasury Select Committee what profit they made from their savings deals, though some said they would submit this in writing later.

But other statistics suggest the big banks are making a healthy profit out of the widening gulf between pitiful savings rates and what they charge mortgage and loan customers.

This is known as ‘net interest margin’ in bank-speak. Put simply, the higher the number, the bigger the profit for the bank.

Lloyds Banking Group, which includes Halifax and Bank of Scotland, reported a net interest margin of 2.98 per cent in the three months to September 2022. That is up from 2.52 per cent in the same period of 2021. The income it took from this gap increased from £2.85 billion in Q3 2021 to £3.39 billion in Q3 2022.

At NatWest the margin climbed to 2.99 per cent — up from 2.35 per cent in the same period of 2021 – earning it £2.64 billion in profits. Barclays has the biggest margin of 3.01 per cent, bringing in profits of £1.56 billion.

Santander UK reported a margin of 2.07 per cent for the three months to September 2022, up slightly from 1.91 per cent in 2021 and netting £1.15 billion in profit.

Meanwhile HSBC, which only reports its global figures, saw its margin grow to 1.57 per cent in the period from 1.19 per cent in 2021, raking in £7.48 billion.

Playing fair? Data suggests banks are profiting from the difference between pitiful savings rates and what they charge mortgage and loan customers

Playing fair? Data suggests banks are profiting from the difference between pitiful savings rates and what they charge mortgage and loan customers

The banks’ full-year 2022 results – and their latest net interest margins – are out later this month.

Laura Suter, AJ Bell head of personal finance, said: ‘Banks respond to two forces: the base rate and competitors. They will use base rate as a gauge of whether to raise their savings rates, but of much more importance is what their competitors are doing. 

‘No bank is going to hike rates dramatically above the highest rival, as they only need to nudge it slightly over their competitor’s offering to win business.’

What the banks say

A Natwest spokesman said: ‘We have been focussing on helping our customers to develop a savings habit and since 2020, we have helped 1.7million customers save £100 or more for the first time. 

Our Digital Regular Saver account, which pays a market leading rate, is helping over a million customers to regularly save. Around half of our savings accounts opened in 2022 were Digital Regular Savers.’

An HSBC spokesman said: ‘There are a number of different factors that influence the interest rates of savings accounts and each provider will have their own reasons for making their individual commercial decisions. Our savings accounts are competitive and cater for the different needs of savers.

‘We have increased rates on savings accounts seven times in the last year, with the most recent changes, which included up to 0.55 per cent on instant savings accounts, coming into effect last week.’

Barclays would not comment.