Ahead of the Bank of England announcing the latest interest rates tomorrow, smart money app Plum is calling out banks for profiteering from high interest rates and not passing interest back onto savers.
Despite recent hikes in the Bank of England’s base interest rate, which currently stands at 5.25%, many UK banks have been slow to adjust their savings account rates accordingly. This has left consumers feeling short changed and struggling to make the most of their money.
New research from Plum shows that the average UK saver is putting away £260 in savings each month, with a total of £24,500 in their savings accounts. In addition, the research found that the average Brit is getting 3.3% interest on their savings account, 1.95% under the base rate. This means that on average, customers are losing out on £478 in interest per year1, equating to a hefty £17 billion across UK savers2.
Despite savers being able to gain higher interest rates by switching, the majority of savers (77%) hadn’t done this. They cited similar rates between banks (28%) and liking their current banks (30%) as the biggest barriers, even though 71% of people felt that banks profits were too high. The biggest motivator for saving was for an emergency fund (49%), with holidays coming in second (44%). Saving up to buy a house or for home improvements was the biggest motivator for people under 45 (47%) and for the 55-64 age bracket, saving for retirement was their biggest priority (51%).
In July this year, the FCA set out a 14-point action plan to ensure banks and building societies are passing on interest rate rises to savers appropriately, with those that fail to justify their pricing decisions by the end of 2023 set to face robust action from the FCA.
Victor Trokoudes, Founder and CEO of Plum, said: “While 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 in tomorrow’s announcement. That’s why it’s so important that the public know 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, which has already helped people to set aside £2bn, is launching a new product that allows people to earn higher returns that are more closely aligned to the Bank of England base rate.
