Banks have defended themselves against accusations they are profiteering from higher interest rates.
The Treasury Committee group of MPs has said the so-called challenger banks are offering “measly” interest rates to savers with the head of the committee saying “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,” treasury committee chair Harriet Baldwin said.
The smaller, recently created banks had been questioned by the committee on their savings rates as the Bank of England increased the base interest rate to 4.5% – the highest rate since 2008 – in an effort to bring down persistently high inflation.
Lenders had been accused of not passing those higher rates to depositors to maximise bank profits as their rates are significantly lower than the Bank rate.
“We remain concerned that the loyalty penalty is especially prominent for elderly and vulnerable customers who may still rely on high street bank branches,” Ms Baldwin said.
“It is clearer than ever that the nation’s biggest banks need to up their game and encourage saving.”
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On Thursday the responses of challenger banks – Virgin Money, Nationwide, Santander and TSB – were published.
Santander said the Bank of England base rate is only one factor in setting its savings rates but it also needs to consider its costs.
“We must also balance pricing against all our fixed and funding costs,” Santander said.
Similarly Nationwide said it weighs up paying higher saving rates against maintaining the lender’s financial strength.
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The lender with the lowest everyday saver rate, Virgin Money, said as well as liquidity and customer’s account access it considers “the complexity to serve” and its market position.
“We must also consider our comparative market position to ensure we do not price products that risk either excess volumes that result in poor customer service outcomes”, Virgin Money said.
TSB said it considers customers access to savings and that instant access savings have a lower rate than fixed-term products. It also considers the bank’s capital and liquidity requirement and operational and funding costs.
The lenders account for a quarter of all personal current accounts, according to the Financial Conduct Authority (FCA).
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The rates they offer are as follows:
• Virgin Money everyday saver – 0.25%
• Santander everyday saver – 0.85%
• TSB easy saver – 1.1% for the first year
• Nationwide instant access saver – 1.25% for sums up to £10,000
By comparison, the big four bank offer slightly higher savings rates:
• Barclays everyday saver – 0.7%
• Lloyds Bank easy saver account – 0.9% up to £25,000
• NatWest flexible saver – 1% up to £25,000
• HSBC flexible saver – 1.35%
