Banks accused of 'measly' interest rates on savings

Loyal bank customers are being offered "measly" rates of interest on their savings, a committee of MPs has said.

The trend, which particularly affects older and more vulnerable customers, are the result of banks chasing higher profit margins, MPs on the Treasury Committee claimed.

Rates on instant access savings products are much lower than the Bank of England base rate.

Banks said they had to balance the needs of savers and borrowers.

In the past few months MPs on the committee have been challenging major banking bosses on the returns offered to their savings customers.

In February, the chief executives of the four biggest banks in the UK - Lloyds, NatWest, HSBC and Barclays - were given a grilling in Parliament.

Described as the highest-paid panel which had sat before the committee for some time - collectively earning more than £10m a year - the quartet of bank bosses argued that the debate incorrectly centred on the interest rate offered on easy access savings accounts.

They argued that regular saver deals offered market-leading rates of interest, and that instant access products were often a "gateway" to higher interest deals.

The hearing was followed by a string of letters to those banks, and the next tier of providers. Their responses have just been published.

Among them was a letter from Debbie Crosbie, chief executive of the Nationwide, who said that the building society needed to be prudent, it tried to help customers to get a better deal, and balance was required.

She said that included weighing up "the interests of savers with our mortgage borrowers, particularly with cost-of-living pressures".

The committee appears to be unimpressed with the providers' defence. It pointed out that the the big four High Street banks offered instant access savings rates of between 0.7% and 1.35%, compared with a Bank of England base rate of 4.5%.

"It is clearer than ever that the nation's biggest banks need to up their game and encourage saving," said Harriett Baldwin, who chairs the committee.

"While other products are available to those who shop around, the measly easy access rates on offer lead us to conclude that loyal customers are being squeezed to bolster bank profit margins.

"We remain concerned that the loyalty penalty is especially prominent for elderly and vulnerable customers who may still rely on High Street bank branches."

On Wednesday, UK Finance - the trade body for the banking sector - published data that showed total household savings shrunk year-on-year for the first time in at least 15 years.

The value of deposits in instant access accounts fell by 4% to £867bn in March compared with £905bn a year earlier, as people dipped into savings pots to cover larger bills and food shopping.