16 January 2023
Interest Rates on Instant Access Savings Accounts Aren't Keeping Pace with the Bank of England Base Rate
The last twelve months have seen several rises in the Bank of England base rate, as the UK's central bank tries to get to grips with inflation.
From a very low rate of 0.25% a year ago, the base rate has risen incrementally since then to 3.5%.
Higher interest rates should mean that people can earn more money on their savings. As the graph below shows, however, the rates on instant access savings accounts have been slower to improve than those on fixed-term bonds.
Currently, the best rate available on a standard instant access account is 2.86% - somewhat below the base rate of 3.5%.
Some banks, however, are offering much lower rates on some of their instant access accounts:
Customers with savings in these accounts are not getting a good deal, since they could be getting a much higher return on their savings if they moved their money to another account.
Banks are taking advantage of customers' inertia and unwillingness to move their money. This is arguably a 'foreseeable harm' highlighted by the FCA in their Consumer Duty guidance, which calls on firms to 'proactively consider how consumers’ behavioural biases, such as inertia, might lead their products or services to cause foreseeable harm.'
Customers seem to be aware, to some extent, when they're not getting a good deal. Our polling from August 2022 shows that the above-mentioned providers - with the exception of First Direct - have below-average customer satisfaction when it comes to their savings account providers.
Providers that have been consistently offering more competitive instant access interest rates such as RCI Bank (currently 2.45%) and Chase (2.7%), have significantly happier customers.
If banks want to keep their customers happy, then, the message is clear: they should increase the rates on their instant access savings accounts.