Recent interest rate hikes by the Bank of England mean that it now stands at 5.25 per cent. While mortgage and loan interest rates have risen accordingly, costing UK residents more money, most UK banks have been slow to up their savings account rates to the same degree (if at all). Smart money app Plum is now urging banks to put an end to this profiteering and pass interest back to savers.
With most UK consumers now feeling short-changed and struggling to make the most of their money, as a result of standstill savings interest rates, new research from Plum reveals that the average Brit is receiving 3.3 per cent interest – a dramatic 1.95 per cent under the base rate.
This means that, on average, UK customers are missing out on £478 in interest per year, equating to £17billion across all savers in the UK.
In July, the Financial Conduct Authority (FCA) set out its 14-point plan to ensure banks and building societies pass on interest rates to savers. Despite this, many interest rates on savings accounts continue to sit where they were prior to this plan.
While those that fail to justify their pricing decisions by the end of 2023 are set to face robust action from the FCA; this threat has yet to deliver the push that consumers want, and in many cases need, to see now.
Despite savers being able to gain higher interest rates by switching, around 77 per cent of savers have not yet done this. They cited similar rates between banks (28 per cent) and liking their current banks (30 per cent) as the biggest barriers, even though 71 per cent of people felt that banks’ profits were too high.
The biggest motivator for saving was for an emergency fund (49 per cent), with holidays coming in second (44 per cent). Saving up to buy a house or for home improvements was the biggest motivator for people under 45 (47 per cent) and for those aged 55 to 64, saving for retirement was their biggest priority (51 per cent).
Devaluing customer savings
Victor Trokoudes, founder and CEO of Plum, said: “While UK banks have been quick to increase interest rates on loans and mortgages, they have been sluggish in boosting interest rates on savings accounts.
“We are in the midst of a cost-of-living crisis and consumers are continuing to face financial pressures. So it’s really disappointing to see that many banks are not passing more of this money back onto customers, effectively devaluing their hard-earned savings.
“While the FCA has pledged to take action against this behaviour by the end of 2023, it’s by no means a silver bullet. Borrowers are paying more while savers see minimal benefits, highlighting that the business models of the major banks are inherently misaligned with the interests of their customers.
“The Bank of England has raised rates 14 times since December 2021, and they are expected to remain high. That’s why it’s so important that the public knows that they don’t need to stand for this and allow banks to take their deposits for granted. We’ll be offering a new service that better reflects these base rate changes so their money can work harder.”
Plum has already helped people to set aside £2billion and is also launching a new product; helping people to earn higher returns that align more closely to the Bank of England’s base interest rate.