Don't let your bank rip you off: shop around for the best deals on savings and mortgages

Banks have been hiking mortgage rates while slashing savings rates, analysis shows. That means you need to be proactive if you want to stop banks from cashing in on your loyalty.

Some of Britain’s largest banks have been accused of profiteering while their customers receive poor interest rates on their savings and pay high interest rates on their mortgage repayments. 

Last year Lloyds, Barclays and NatWest earned a collective £30 billion from the difference between savings and borrowing rates, say City commentators. 

The three banking giants are set to announce their net interest income when they unveil their financial results this month. 

High street lenders have benefited from the increase in interest rates over the past two years, hiking costs on mortgages and loans faster than they have increased rates on savings accounts. 

The lenders have also earned a combined £40 billion a year in interest on their Bank of England deposits, which critics complain is essentially a subsidy given taxpayers foot the bill for the Bank’s cost base 

UK banking shares have also performed well on the stock market. 

Savings rates slump

Meanwhile, some of the rates available on high street banks’ easy-access accounts have deteriorated in recent months, according to the latest research by financial information service Moneyfacts. 

On average, the big banks pay around 1.42% on their standard flexible easy-access accounts, according to the data cruncher. 

This is much stingier than the market average rate of 2.9%, while some of the current best buy easy-access accounts pay more than 4.5%, according to Moneyfacts. 

Indeed, in terms of easy access accounts open to new customers and allowing multiple withdrawals without fees or penalties, this is how much interest the high street banks’ accounts will pay on savings of up to £10,000: 

• Barclays’ Everyday Saver - 1.5%;
• HSBC’s Flexible Saver - 1.74%;
• Lloyds Bank’s Easy Saver - 1.15%;
• Natwest’s Flexible Saver - 1.49%;
• Santander’s Easy Access Saver - 1.2%.

“It will be disheartening news for savers to find the biggest banks have cut rates on their most flexible savings accounts, resulting in a further drop in their market positions,” said Rachel Springall, finance expert at Moneyfacts.

“As challenger banks work hard to improve their market positions and gain trust, the biggest banks don’t need to make too much effort to pull in investors due to their legacy."

Banks: ‘Loyalty doesn’t pay’

However, while customers tend to stick with their banks through thick and thin, the high street banks don’t repay this loyalty, warns Springall. 

“Loyalty does not pay which is why savers need to look beyond the biggest brands when comparing savings rates,” she said. “

Regularly reviewing and switching pots is essential when interest rates change, particularly when base rate cuts flow into the savings market.”

Meanwhile, customers should complain about the poor service and vote with their feet, she said.

“The Consumer Duty rules from the Financial Conduct Authority (FCA) are designed to provide better value for consumers, and it will be up to providers to ensure they are offering their customers fair value.

“There are a multitude of brands covered by the Financial Services Compensation Scheme (FSCS), so it’s wise for savers to take some time to navigate the different options out there which could offer better value.”

A question of timing 

“It feels like the banks are squeezing every spare penny from us – hiking mortgage deals while simultaneously cutting savings rates,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

However, Coles also pointed out that this could partly be due to a timing issue – rather than being intentionally underhand.

“Mortgage rates tend to respond faster and move further than savings deals – both when rates are rising and when they’re falling,” she explained. 

“The savings market moves far slower because the high street banks aren’t competing hard for business,” she said.

“The smaller and newer online banks and savings platforms also inch up or down more slowly as nobody wants to attract too much cash at too high a price.”

Is your bank profiteering?

Of course, Coles doesn’t believe a profit incentive can be completely ruled out as institutions stand to benefit from the different rates on offer.

“The bigger the gap between savings and mortgage rates, the more profit banks can make in this corner of their business,” she said.

It’s a point that has been raised by letters and reports published by the Treasury Select Committee of the House of Commons.

It discovered the biggest savings providers, on average, only passed on 28% of the base rate rise to easy access deposits between January 2022 to May 2023. 

For notice and fixed term deposits, it was 51%, pointed out Harriet Baldwin MP, chair of the Treasury Select Committee.

“Across all easy access accounts, which represent 60% of all balances, the average interest rate was 1.25% in May 2023, compared to a base rate of 4.5%,” she wrote.

Shop around for the best deals

A spokesperson for UK Finance, a trade association for financial services, defended the disparity faced by savers and borrowers.

“Saving and mortgage rates aren’t directly linked and therefore will move at different times and by different amounts,” he said. “Savings rates increased significantly last year and there are a lot of good products available in a competitive market.”

He also emphasised that people should shop around for the product and interest rate that is suited to their needs. 

“If you can put your money away for period of time or make a regular saving commitment you can generally get a higher rate, but there are also good rates on instant access accounts,” he said.

In addition, the spokesman pointed out that most mortgages in the UK are currently fixed rates.

“The mortgage market is very competitive and mortgage rates are driven by several factors, including changes in lenders’ funding costs,” he added.

You can check out the latest deals here.

Keep on top of deals

Adam Thrower, head of savings at Shawbrook, believes accounts can become “a forgotten corner” of their finances for many savers.

“This can be a costly oversight, as sticking with an uncompetitive rate could mean missing out on potentially hundreds of pounds in additional returns,” he said. 

He added that savers should be proactive and ensure their hard-earned money is working hard on their behalf. “A quick five-minute check could reveal a significant difference in interest, boosting their savings pot,” he said.