Banks with worst savings rates face being named and shamed under new plans

31 July 2023 , 14:07

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The FCA is clamping down on banks who fail to pass on interest rate rises to savers (Image: Getty Images/iStockphoto)

Banks have been ordered to justify the interest rates they give to savings customers or face "robust action" the UK's financial watchdog has warned.

The Financial Conduct Authority (FCA) revealed that only nine of Britain’s biggest saving providers passed on only 28% of interest rate rises to their easy access deposits between January 2022 to May 2023 - despite boosting rates on mortgage products.

Even on fixed-term savings, which requires you to lock away your cash for a period of time, only 51% of the Bank of England’s interest rate rises were passed on.

According to the regulator, five big retail banks had about £260billion of deposits earning 1% or less. Due to this, the FCA says it will begin monitoring how quickly banks pass on savings rates to customers following a Bank of England rates decision.

It also said it was to publish an “analysis” of banks easy-access savings rates where it will name those that continue to lag behind. It will also force lenders to encourage customers to search for higher rates. The clampdown comes as part of a 14 point plan from the financial watchdog.

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The FCA also noted that banks with the lowest savings rates will have to justify the reason by the end of August. If banks do not comply, then the FCA will take "robust action" by the end of the year against those who "cannot demonstrate fair value".

The watchdog says it will use its full range of powers against banks including fines. Sheldon Mills, executive director of consumers and competition at the FCA, said: "We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates.

"We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case – with firms required to prove to us that they are offering their customers fair value.

"We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available."

Ruby Flanagan