Why your UK bank should be increasing your savings interest rate

As the Bank of England continues to increase interest rates, with another hike to 4.5% from 4.25% expected next week, UK customers are not seeing this reflected in the savings interest rates offered by their banks. This means that many banks are set to make considerably more from borrowings as a result of the tax cut from 8% to 3% on bank profits announced by Jeremy Hunt, whilst those holding active savings accounts are missing out.

Why banks should be increasing the interest rates on their savings accounts

Over the past year, the Bank of England has been steadily increasing interest rates in order to combat the rise of inflation which has risen to around 10% – 8% above the Bank of England’s target of 2%. The increased interest rates should result in people spending less and saving more as loans and mortgage repayments rise, reducing the demand for goods and services and forcing companies to lower their prices. As banks will therefore be making higher profits from lending to customers, they should be balancing the negative impact on borrowers with higher interest rates on savings accounts, which would mean those setting more money aside would benefit from higher returns over time.

Which banks are under fire?

However, it has become apparent over the past few months that this is not the case, and that some of the UK’s largest banks are resisting increasing this expected increase. These include HSBC, Natwest Group, Lloyds Banking Group and Barclays, all of which have been offering only 1.3% interest on their easy-access savings account compared to the base rate which is currently sitting at 4.25%. It has also been highlighted that those who have been banking with one establishment for an extended period are facing a ‘loyalty penalty, with new customers being offered better rates than existing customers.

What has been the response?

The Financial Conduct Authority has now decided to act after monitoring the situation and has informed MPs that from July the 31st, its new Consumer Duty rules will “require firms to be able to justify and explain the rationale for the speed with, and degree to which, they make changes to their various savings rates”.

A spokesperson representing the UK’s banks has argued that account interest rates are impacted by a variety of factors, for example ‘whether someone wants instant access or can deposit their money for a longer period of time’.

Chair of the MP Treasury Committee, Harriet Baldwin has commented that ‘“We anticipate that the financial regulator will want to look into this issue in further detail, in particular, whether the market is truly competitive and if retail banks are relying on customer inertia to keep savings rates low.”

What can you do?

Whilst many banks are failing to provide savers with interest rates that reflect the current economic circumstances, as a consumer, you might want to consider investing your money elsewhere for better returns.

MYGAs

If you are apprehensive about the idea of investing and don’t foresee the need to access your savings in the immediate future, Multi-Year Guaranteed Annuities might be a good way for you to profit from your savings without taking the risks that can be associated with other investment vehicles. When investing in an MYGA with us through our reputable provider, you can make the most of higher interest rates by paying an initial premium of between $250,000 – $2,000,000 and in turn receive regular monthly payments in return for a fixed period of your choosing (3,5,7, or 10 years). This is a safe way to grow your money, as the return rate is guaranteed, and the assets are not subject to market fluctuations.

Cautious Investing

If you are a little more comfortable with the idea of investing but still want to minimise risk, the Nexus Global Cautious portfolio could be a good solution for you. With a Summary Risk Indicator value of 2 out of 7, this portfolio is an actively managed, globally diversified, multi-asset class fund that aims to achieve growth over the lower medium term, with a focus on capital protection as well as capital appreciation. The portfolio is designed for use either as part of a diversified investment portfolio or as a standalone diversified investment and is made up of UK and international equities, government and corporate bonds, and cash.

If you want to ensure that you are making the most of your savings or would like to discuss a wider bespoke wealth management strategy, you can arrange a complimentary, no-obligation consultation with one of our experienced advisers by clicking the link below

This communication is for informational  purposes only and is not intended to constitute as investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity.