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.

Bank customers are being urged to shop around after it was revealed mortgage rates have risen at the same time interest on savings was cut.

The Bank of England decided in early May to keep the base rate at 5.25% due to ongoing concerns about the rate of inflation.

But industry experts have since noticed a disparity between the interest rates being offered by institutions to borrowers and savers. 

According to Sarah Coles, head of personal finance at Hargreaves Lansdown, anyone taking a recent snapshot would have seen mortgage rates rising and savings rates dropping.

“It feels like the banks are squeezing every spare penny from us – hiking mortgage deals while simultaneously cutting savings rates,” she said.

A question of timing 

However, Coles also pointed out that the different experiences of borrowers and savers 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,” explained Coles. 

While the average two-year fixed-rate mortgage fell to 5.56% at the end of January, rates reached 5.93% earlier this month when inflation proved stickier than expected.

“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.

A mixed outlook

James Hyde, spokesperson at Moneyfactscompare.co.uk, has noticed changes in both directions when it comes to mortgage and savings rates.

“Providers such as Halifax have reduced savings rates in recent weeks, but some challenger banks and building societies have made adjustments in the opposite direction,” he said.

It’s been a similar story in the mortgage market, with larger lenders, such as NatWest and Santander, increasing selected fixed rates, while smaller lenders and mutuals have made reductions.

“It remains to be seen if more of a conclusive trend emerges in the coming weeks, as the next inflation and base rate announcements approach,” he added.

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. 

With interest rates expected to peak soon, he pointed out that now is the time for savers to 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 added.