Between 2008 and 2022 the average rate of inflation was 2.71%. Why then, asks INTEREST in its current issue, did the Bank of England’s Monetary Policy Committee keep base rates at an average of only 0.82% during that period?
If the Bank of England rate setters had observed the Moneyfacts Rules of Thumb the average base rate during those 14 years should have been 5.25% instead of 0.82%. More to the point, why did the UK banking industry follow suit? Why did they reduce savings rates, during that period, to an average of 1.52% – well under the rate of inflation?
Although, in a normal market, base rates and retail rates will be roughly in line, this wasn’t a normal market. The Bank of England was using quantitative easing to keep the bank base rate artificially low as part of its monetary policies. The banks didn’t have to follow suit. Indeed, they had a moral, commercial and banking duty to pay their customers the proper rate.
Instead, they followed the Bank of England’s lead, and the result was that between 2008 and 2022 savers were quite unfairly deprived of about 3.20% a year on their savings. Compounded, that works out at 61.5% over that period.
The four largest banks in the UK, Barclays, HSBC, Lloyds and NatWest between them, now control 85% of UK business accounts and 75% of current accounts.
For too long these Big Four banks, between them, have paid their savers too little; charged their customers too much; closed branches; reduced services; mis-sold PPI; mis-sold interest rate swaps; de-banked customers; ruined local communities and damaged local businesses.
As late as April 2021, Barclays had nine open savings accounts, offering between them an average of 0.15%. Lloyds had 21 averaging 0.23%, HSBC had 25 averaging 0.24% and NatWest had 19 averaging 0.38%.
This means that across their total of 74 combined savings accounts, customers of the Big Four banks were seeing average returns of just 0.26% on their deposits even though inflation at that time was 1.5%. Which means, using Moneyfacts Rules of Thumb, saving rates should have been around 3.5%. Many times more than they were paying.
Savers should not have to endure below inflation interest rates and the Big Four must not be allowed to get away with leaving local communities unbanked through branch closures. Competition in the sector must be restored and the Financial Conduct Authority (FCA) must make sure that the scandals and poor customer treatment of recent years can never be repeated.
Read the latest issue of INTEREST here.