Banks passing on BOE interest rate increases

RG2015

I am trying to understand the expectation that banks should pass on the Bank of England base rate increases to their savers.

I have seen numerous comments on this, but am trying to find some convincing arguments either for or against this concept.

My first thought is the possible bias in this language. "Passing on" implies the banks are receiving something that isn't really theirs and is actually owed to their savers. Clearly there is no legal requirement to do this but is their any element, in the eyes of some, of a moral obligation?

Note: There is a possibility that I have asked this question before and if I have I apologise, but following today's 0.50% increase this issue still intrigues me.

MEM62

RG2015 said:

My first thought is the possible bias in this language. "Passing on" implies the banks are receiving something that isn't really theirs and is actually owed to their savers. Clearly there is no legal requirement to do this but is their any element, in the eyes of some, of a moral obligation?

It is not a clear cut as that as there are other factors.  A bank is basically a money shop and the rates they offer depend on the type of business they want to attract.  Rates will be lower if a particular institutions does not want to attract cash or short term savings business.  For example, if they are lending less, they don't need as many deposits.     

eskbanker

The Treasury select committee has been pushing the FCA for action on this and seeking responses directly from banks - there is clearly an expectation that banks don't widen margins opportunistically but as ever it'll be best not to hold your breath waiting for concrete actions instead of weasel words!

https://committees.parliament.uk/publications/39041/documents/192061/default/
https://committees.parliament.uk/committee/158/treasury-committee/publications/3/correspondence/?SearchTerm=7+February&DateFrom=22/03/2023&DateTo=22/03/2023&SessionId=
https://committees.parliament.uk/committee/158/treasury-committee/news/195567/treasury-committee-publishes-savings-rates-responses-from-banks-and-building-societies/

dealyboy

We should get more information on this tomorrow as Rishi talks to the banks and building societies; the outcome should be interesting considering the PM's background but without any direct authority.

RG2015

dealyboy said:

We should get more information on this tomorrow as Rishi talks to the banks and building societies; the outcome should be interesting considering the PM's background but without any direct authority.

When I compiled the original post I was conscious that the link with mortgage rates was far more significant. But being mortgage free, I am more interested in the savings market. I was paying 15% in the 80s and in the 00s I was on a 1% tracker mortgage.

The use of tracker rates is far more prevalent for mortgages than for savings accounts. Hence the link there is automatic.

I am not sure if it would be good for savers if banks were pressurised into "passing on" BOE rate increases.

dealyboy

RG2015 said:

dealyboy said:

We should get more information on this tomorrow as Rishi talks to the banks and building societies; the outcome should be interesting considering the PM's background but without any direct authority.

When I compiled the original post I was conscious that the link with mortgage rates was far more significant. But being mortgage free, I am more interested in the savings market. I was paying 15% in the 80s and in the 00s I was on a 1% tracker mortgage.

The use of tracker rates is far more prevalent for mortgages than for savings accounts. Hence the link there is automatic.

I am not sure if it would be good for savers if banks were pressurised into "passing on" BOE rate increases.

I presume their aim is to restrict the money supply in what started as cost-push but could be becoming demand side with increasing wages of around 7%. I would hope that savers could be included as a 'passing on' carrot sinkhole, but I do feel for those many mortgaged people with families.

lohr500

We have cash ISAs with Coventry and Ecology Building Societies. Both put out statements yesterday that they were in the process of reviewing their interest rates as a result and would make decisions shortly.

Hopefully they will both "pass on" the 0.5% increased rate to our ISA savings.

dealyboy

Just had an e-mail from RBS ...

https://www.rbs.co.uk/savings/manage-your-savings/savings-interest-rates-changes.html

... hint ... don't bother 

BooJewels

I was surprised to refresh the page on the Halifax fixed ISA saver this morning to see if there had been any shift in rates and it has gone up exactly 0.5% overnight.  1 year at 4.8%, 2 year at 4.85% and 5 year at 3.6%.  There's an extra 0.05% on the 1 and 2 year terms if you've had a current account for more than 40 days.

dealyboy

So RG2015 ... 2 days on ... banks & building societies have been persuaded by the government to support mortgage holders with a combination of deferred actions and changed contracts.

Unfortunately the government have not persuaded the banks & building societies to improve savers' terms and conditions.

Despite what the government uses for it's statistics my inflation rate is around 15-20% percent, 50% expenditure on groceries, 25% on housing (increases by RPI).

High street banks are "taking advantage" of savers by refusing to pass on the benefits of higher interest rates, Harriet Baldwin the chairman of the Commons treasury select committee told the BBC, "they (the banks) have taken it for granted that we have got used to not earning anything on savings", according to the Daily Telegraph Saturday 24th June 2023 p6.

VNX

Switching savings from a high street bank paying peanuts to one of the many others who are paying significantly more takes no effort and very little time so I don’t lose any sleep over high street banks savings rates.

This isn’t a new phenomenon either, high street banks haven’t rates since forever 

It doesn’t make it right however