Banks fail to pass on interest rate rise to savers

Banks are not passing on interest rate rises to savers, an investigation by Which? reveals.

The Bank of England base rate of interest increased for the first time in a decade in November from a record low of 0.25 per cent to 0.5 per cent.

But an investigation reveals that while banks passed on the 0.25 percentage point rate rise to mortgage customers, increasing their monthly repayments, just one in five passed on the rate rise to savers.

- Will interest rates rise in May?

Which? analysed 327 variable instant-access savings accounts and Cash Isas in the five weeks after interest rates increased.

It found that 48 per cent made no changes to the interest the accounts paid. A further 30 per cent increased their rate but by less than 0.25 per cent and just one in five passed on the full 0.25 per cent rate rise.

Meanwhile, 13 of the top-paying accounts were withdrawn and relaunched, in some cases with a reduced rate.

The consumer group looked at 95 providers in the instant-access savings market and found just 10 per cent of them had applied the full rate rise to all their instant-access savings accounts and Isas five weeks after the base rate was increased. Meanwhile, 66 per cent had not applied the full increase to any of their accounts.

Yet when it comes to interest rates on mortgages, it seems that providers were quicker to make changes.

Gareth Shaw, money expert at Which?, says: ‘The last base rate rise saw clear double standards from some financial institutions, hiking the bills of mortgage holders while denying savers the full benefit and actually withdrawing some of the most competitive deals altogether.

‘Ahead of a possible future rate rise, we’re calling on banks and providers to be fair to their customers across the board.’

Mortgage rate hikes

Some 53 per cent of lenders increased their standard variable rate for existing borrowers by December and the average rate of two-, three-, and five-year fixed mortgage deals all increased between October and December.

Analysis of 76 fixed-rate mortgage providers found 40 per cent had increased their average rate for five-year fixed rates. Which? research found Monmouthshire Building Society and Allied Irish Bank customers saw the greatest hikes, with each lender increasing at least one deal by 0.45 per cent.

The greatest reduction was 0.76 per cent on a three-year deal from Newbury Building Society.

In all, some 497 fixed-rate deals changed after the base rate rise. Of these, 75 increased by more than 0.2 per cent. Some 135 deals were withdrawn, including four of the 10 cheapest two-year deals.
With many people expecting a second rate rise in May, Which? mortgage adviser David Blake says borrowers need to plan ahead.

He says: ‘It’s important to properly understand the impact a rate rise would have on your mortgage payments. Even if you are currently locked into a mortgage product, it’s still worth looking into re-mortgaging to a long-term fixed-rate to help protect yourself from the financial shock of future rate rises.’

- Why you should expect two interest rate rises in 2018

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