Mind the gap: High street banks still shortchanging savers

Which? analysis of savings rates over the past year has exposed how little progress many of the biggest banks have made despite coming under increasing pressure to offer savers a fair deal.

The Treasury Committee of MPs and the Financial Conduct Authority (FCA) have both been highly critical of the rates offered by the biggest banks. 

The FCA has ordered providers to up their game or face the consequences. Despite these warnings, our latest research suggests that many providers still have work to do: while the Bank of England base rate is now at 5.25%, many high street names are still paying less than 2% on their easy-access accounts.

Here we reveal the size of the gap between the big banks and the rest of the market, and explain what you can do to boost your savings.

Banks put on notice

As Which? research published earlier this year shows, major banks have long been guilty of offering poor rates to savers.

In February, the Treasury Committee of MPs hauled in the bosses of some of the UK’s leading banks to demand an explanation for the miserly rates they were offering on some accounts. The high street giants came under more scrutiny after posting bumper profits in the summer.

At the end of July, the FCA announced a 14-point plan on cash savings which put banks on notice that their behaviour would no longer be tolerated. It said that ‘while interest rates on savings accounts have been rising, this has been happening more slowly for easy-access accounts’.

The FCA stated that firms found to be offering the lowest rates would be required to justify them, warning that they would face action if unable to do so.

• Find out more: check the top savings rates available now

Big names drag their feet

Between October 2022 and October 2023, the BoE hiked the base rate seven times, raising it by three percentage points from 2.25% to 5.25%.

But our analysis shows that over the same period, the average easy-access rate offered by the big banks only increased by half this amount (+1.56pp), taking it from 0.42% to 1.98%. 

By comparison, building societies raised rates by an average of 1.98 percentage points (from 0.96% to 2.93%), while challenger banks raised their rates by 2.31 percentage points (1% to 3.31%).

And despite the FCA’s warning in July, many of the UK’s leading banks have failed to make substantial improvements to their rates in the months since. 

Between July and October, the average easy-access rate across the whole market went from 2.41% to 3.16% (+0.75pp), but the only big names to improve their rates by more than this amount over the same period were Barclays (+0.8pp) and Ulster Bank (+4.1pp). 

Ulster Bank is also the only high street name to offer an above-average rate: its Loyalty Saver offers an impressive 5.2% (for balances of £5,000 and above). Meanwhile, Barclays, Halifax, HSBC, Lloyds and NatWest all pay 2% or less on their easy-access accounts.

Easy access rates across most traditional banks have shown little improvement

Fixed rates see bigger increases

Looking at one-year fixed accounts, the major banks have shown more improvement over the past 12 months (up 3.45pp on average) than either challenger banks (+2.61pp) or building societies (+2.72pp).

But the rates they offer are still not particularly competitive, with none of the big banks appearing in the top half of the table.

Despite some competitive accounts being withdrawn, the best one-year fixed accounts on the market still pay around 6%. 

• Find out more: which type of savings account is right for me? 

Watchdog ready to bite

When we submitted our findings to the FCA, a spokesperson told us: ‘The level of base rate being passed through to saving accounts, including easy-access savings, has been increasing – but this varies between firms.

‘We have since ordered nine firms to provide us with their assessments of what value their savings products offer, and are currently reviewing them.’

The regulator declined to name the firms in question or explain what action (if any) they may face, but promised an update later this year. 

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Have savings rates reached their peak?

With the Bank of England finally pausing its hikes in the base rate in September, and again in November, analysts think we may have reached the top of the savings market.

Savers flocked to NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds when they launched at the end of August with a fixed rate of 6.2% for a year, but the accounts have already been pulled from sale.

Usually speaking, the longer you’re willing to lock your money away, the more interest you can expect to earn. But that’s not the case now: the best two, three and five-year fixed accounts all pay less than the best one-year account, indicating that providers expect rates to fall before too long and don’t want to commit to paying higher rates for an extended period.

Mark Hicks, head of savings at Hargreaves Lansdown, recently warned: ‘The days of 6% rates on one-year fixed products are numbered. What started off as a trickle of withdrawals has now turned into a trend, with multiple banks and building societies recently removing products.

He added: ‘This could be the last chance to fix before rates start to move lower.’

How to boost your savings

• Minimise your tax bill: if you’re close to exceeding your personal savings allowance (annual interest of £1,000 for basic-rate taxpayers and £500 for higher- rate taxpayers), make the most of a cash Isa, where your savings can grow tax-free. If you won’t earn enough interest to incur tax, stick to ordinary savings accounts as they typically pay better rates than Isas. 
• Lock your money up: once you’ve built a rainy day fund in an easy-access account, look for a competitive fixed-rate account. The average one-year deal pays 5.36% compared with 3.18% for the average easy-access account, giving you £218 extra interest on a £10,000 deposit.   
• Don’t pay the loyalty penalty: as our research shows, the big banks rarely offer the best rates. To maximise returns, shop around and don’t be afraid to go with unfamiliar brands.
• Manage your money online, where possible: online or app-based accounts generally pay better rates compared to those with branch access. 
• Watch out for withdrawal restrictions: even accounts advertised ‘easy access’ can restrict the number of times you can take out money without penalty.