'Profiteering' banks accused of unfairly keeping savers' hard-earned cash

The government is facing calls to impose a windfall tax on "profiteering" banks who aren't passing interest rate rises on to savers while reaping the rewards from borrowers.

The Bank of England base rate is currently 5%, having increased 13 times in a row as the bank tries to subdue stubbornly high inflation.

However, with the average easy access savings rate on offer standing at 2.49%, according to Moneyfactscompare.co.uk, critics say commercial banks aren't doing nearly enough to pass the difference on to savers.

By contrast, the average two-year fixed homeowner mortgage rate is 6.52% and the average five-year fixed mortgage rate is 6.02%, having recently broken the 6% mark for the first time this year.

Labour MP Angela Eagle, a member of the influential treasury select committee member, said on Thursday that while banks will inevitably have to set a higher rate for borrowers in order to make money, "the gap is ridiculous and unsustainable at the moment".

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She told Sky News' Kay Burley: "Some of the results of this profiteering in the economy, of which banks are one example, is also affecting the rate at which inflation comes down and making the cost of living crisis worse."

The Labour MP said a windfall tax may be necessary for banks who "don't listen", adding that all the members of the treasury select committee, most of whom are Conservative MPs, are "very worried" about the gap between savers and borrowers.

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This is why the committee wrote to Financial Conduct Authority (FCA) about their concerns, with officials from the regulator due to hold talks with bank chiefs on Thursday – with bosses from HSBC, NatWest, Lloyds and Barclays expected to attend.

Victor Trokoudes, founder and CEO of smart money app Plum, branded the system "fundamentally flawed".

“The current system is fundamentally flawed. Banks want to maximise the difference between the rate they lend at and their cost of deposits in order to grow their new interest margin. That means they’re effectively incentivised to pay the lowest possible rate to their depositors to maximise profits," he told Yahoo News.

"It's difficult to see how the regulator can force banks to offer higher rates, so it appears the regulators are hoping to embarrass them into action.

“Meanwhile, a windfall tax could cause broader issues, by damaging confidence in the UK economy, making access to funding harder for consumers and businesses, and likely higher mortgage rates”.

Dame Andrea Leadsom, a former Tory cabinet minister who sits on the committee, recently said: “It’s quite clear they have failed to pass on the rise in interest rates to savers.”

What are regulators doing to control lenders?

From the end of July, a new consumer duty will be introduced by the FCA, to force financial firms to give more priority to consumers.

The new duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first.

Steve Round, former chair of The Big Issue Foundation and chair of the governing board forum of the Global Alliance for Banking on Values, thinks many banks will fall short of this expectation, Retail Banker International reports.

“Banks will be non-compliant because the left hand doesn’t know what the right is doing. People and processes in banks are currently so fragmented that trying to gain a complete view of customers and identify the most vulnerable people is a pipedream," he said.

Banks would face heavy fines if they are found to be non-compliant of the duty, which could serve as an alternative to a windfall tax.

Contrary to Eagle's comments, Labour's shadow education secretary Bridget Phillipson ruled out the idea of a windfall tax, telling Sky News: "We've set out plans around how we would have a windfall tax on the oil and gas companies, we've got no further plans on anything of that description.

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"I do just think it's a case of the banks taking action, making sure they pass those interest rates to savers, it's incredibly important.

"I would say there is agreement across parliament that that needs to happen, but the government really need to put them under pressure to do it."

When asked by Burley if a Labour government could really rely on banks' "better nature" to help savers, she said the government has a number of "levers" and "influence" to make change happen.

Which banks are offering better rates for savers?

Rachel Springall, finance expert at Moneyfacts told Yahoo News that "convenience is costing savers" who opt for easy access accounts with big high street banks.

"As the Bank of England base rate has risen all the way up to 5%, it is evident loyal savers have not seen the full benefits passed on to them," she said.

"It is understandable if consumers want answers as to why specific easy access accounts pay much less than base rate."

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However, some banks may be starting to listen, with a number of providers adjusting their rates in recent days amid grumblings from MPs and regulators.

Skipton Building Society launched a new bonus saver on Thursday, offering savers a rate of 4.22% in its first year, which then reverts to 3.60%.

HSBC UK announced on Thursday that some savings rate changes will take place from Friday, including new rates of 5.05% on its one-year fixed-rate saver and 5.10% on its two-year fixed-rate saver.

Yorkshire Building Society launched a new range of fixed-rate Isas on Thursday, including a one-year fixed-rate Isa at 5.10% and a two-year fixed-rate Isa at 5.20%.

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Meanwhile Shawbrook launched a new easy access savings account on Thursday, paying a rate of 4.35%.

On Wednesday, Coventry Building Society unveiled a one-year fixed-rate Isa at 5.30% and a two-year fixed-rate Isa at 5.40%.

Nationwide Building Society also announced some new savings deals on Wednesday, including a one-year fixed-rate Isa and one-year fixed-rate bonds paying 5.10%.