BANKS could be forced to boost interest rates on savings as households miss out on £364 a year, on average.
New savers are being offered more attractive rates leaving existing customers earning less, according to the Financial Conduct Authority (FCA).
GettyBanks could be forced to boost interest rates as Brits lost hundreds on savings[/caption]
It comes as Coventry Building Society revealed that a whopping £256 billion of household savings are earning no interest at all.
This works out at an average of £364 for every household in the UK, the bank said.
This is because the Bank of England base rate at its highest in 14 years – it currently stands at 4.25%.
Savers could get an extra £10billion worth of interest if they moved their money from a zero interest account and put into a regular saver earning 4%.
High-street banks use the BoE’s base rate to work out the interest rates it offers to customers.
An increase pushes up borrowing costs, including on mortgages.
But savers could benefit from better rates on their nest egg – if the increase is passed on.
Writing to the Treasury Committee, Nikhil Rathi, chief executive of the FCA said loyalty suffers are missing out more now than ever before.
He said: “We expect that the harm from this practice – and the loyalty penalty faced by longstanding customers – will have increased as the base rate has risen.”
Mr Rathi said that from July 31, when setting rates, banks will need to provide “fair value to all groups of savers.”
He added: “We have made clear that firms should be able to justify and explain the rationale for the speed and degree to which they make changes to their various savings rates.”
The regulator monitors the speed and extent to which banks pass on increases in the base rate to their savings products.
It said it had noticed a “material time lag” in saving rate changes, compared to hikes in mortgage rates.
Banks are usually much slower to act compared to when they are passing on higher rates for borrowing.
This means savings rates are more likely to edge up slowly rather than change immediately.
Anyone currently getting a low rate on easy-access savings might want to look around for a better rate.
Rachel Springall, finance expert at Moneyfactscompare.co.uk said challenger banks and building societies are increasing rates faster than bigger banking groups.
She said that savers who compare the top easy access rates will find that these firms often pay 3% or more in interest.
She said: “Challenger banks and building societies may well prioritise offering a fair deal compared to the wider market and adjust their rates to cope with demand or other market influences.
“Mutuals may be worth considering, not just for their savings rates, but also for their principles and the support of local communities and charities.
“It will be down to savers to compare the rates on offer and move their money, so it is wise to review any accounts often and not presume they will see their rate rise in line with base rate.”
How to find the best savings rates
It pays to check you’re getting the best saving rate regularly as better deals are always coming on to the market.
Getting the best rate means you’re making the most of your cash.
Speak to your bank
If your current bank account is offering decent saving rates, be sure to check if you can take advantage of it.
Some banks now require you to apply to add a better savings rate, or it could be a case of switching to a different account with the same bank to qualify.
But if your own bank’s offering is poor, consider switching to take advantage of a better linked saver.
You could even bag a switching bonus this way too.
Check comparison websites
With your current rates in mind, don’t waste time looking at individual banking sites to compare others – it’ll take you eternity.
Research websites like MoneyFacts.co.uk and price comparison websites such as Compare the Market, Go Compare and MoneySupermarket will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
Check the account type
There are five main types of savings accounts, and understanding the differences can help you narrow down the options.
Easy-access savings accounts – usually allow unlimited cash withdrawals. However, this perk means they tend to come with lower interest returns.Regular savings accounts – generate decent returns but only on the basis that you pay in a set amount each month.Notice accounts – offer slightly higher rates than easy-access accounts but you’ll need to give advance notice to your bank (up to 95 days) before you can make a withdrawal or you’ll forfeit the interest.Fixed rate savers – these offer some of the highest interest rates. However, if interest rates increase during your term you can’t move your money and switch to a better account.Individual savings accounts (ISAs) – these can pay high interest but come with high withdrawal fees and are unlikely to be beneficial if you’ve less that £65,000 in saving. However, Lifetime Isas are great for anyone aged 18-39 hoping to buy a house or save for retirement.
Elsewhere, we’ve looked at the banks charging up to four times as much in transfer fees.
And we spoke to one super saver who used money challenges to stash away £6,500.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]