Attention savers! Have you ever noticed how banks are always quick to increase their interest rates, but painfully slow when it comes to passing on those rate rises to your savings accounts? It’s frustrating, isn’t it? Well, in this blog post, we’re going to explore why banks should be compelled to pass on rate rises to savers and how this could benefit the economy as a whole. So grab a cuppa and get ready for some eye-opening insights into the world of banking!
What is the current situation?
The current situation is that banks are not compelled to pass on rate rises to savers. This means that when the Bank of England raises interest rates, banks are free to decide whether or not to increase the interest they pay on savings accounts. This often results in savers seeing no benefit from an increase in rates. The problem is particularly acute for older people who rely on their savings to live on. They are often the ones least able to afford any reduction in their income.
Why are banks not passing on rate rises to savers?
Banks have been coming under fire recently for not passing on interest rate rises to savers. The Bank of England raised interest rates in November 2017 for the first time in a decade, from 0.25% to 0.5%. However, many banks have not increased the interest rates they offer on savings accounts and Isas in line with this increase. This has led to accusations that banks are exploiting savers by failing to pass on rate rises.
There are a number of reasons why banks may not be passing on rate rises to savers. One reason is that banks rely heavily on deposits from customers to fund their lending activities. If banks were to raise the interest rates they offer on savings accounts, this could lead to customers withdrawing their money and placing it elsewhere. This would put pressure on banks’ lending activities and could ultimately lead to higher borrowing costs for customers.
Another reason why banks may not be passing on rate rises to savers is that they are facing increasing costs of their own. One cost that has been rising in recent years is the cost of regulatory compliance. Banks are required to adhere to a growing number of regulations, which has led to an increase in costs. Another cost that has been rising is the cost of customer deposits insurance. The Financial Services Compensation Scheme (FSCS) levy, which is paid by banks to fund the scheme, has almost tripled since 2013/14. This means that banks have less money available to pass on rate rises to savers
What would be the impact of compelling banks to pass on rate rises to savers?
There are a number of potential impacts of compelling banks to pass on rate rises to savers. One is that it could encourage more people to save, as they would know that their money would grow at a faster rate. This could lead to increased economic stability, as people would be less likely to spend all of their income and go into debt. Additionally, it could lead to higher interest rates overall, as banks would need to compete for deposits in order to keep up with the growth of their competitors. Finally, it could also have an impact on lending practices, as banks may become more reluctant to lend money if they know that they will need to pay higher interest rates on deposits.
What other measures could be taken to help savers?
There are a number of other measures that could be taken to help savers. For example, the government could raise the interest rate on National Savings & Investments (NS&I) products. This would provide a boost to savers who rely on these products for their income.
Another measure that could be taken is to introduce a new tax relief for savings. This would incentivise people to save more, as they would know that they would get some money back from the government at the end of the tax year.
Finally, banks could be encouraged to offer better rates on savings accounts. This could be done through regulation, or by providing tax breaks for banks that offer competitive rates. By making it more attractive for banks to offer good deals on savings accounts, more savers would benefit from higher interest rates.
Conclusion
It is evident that banks should be compelled to pass on rate rises to savers, in order to encourage them to save more money. Savers have a right to receive their fair share of financial growth, and they deserve the chance to benefit from any economic upswing. Banks must acknowledge this by allowing savers access to higher interest rates in order for them keep up with inflationary impacts on their savings. When banks are held accountable for ensuring these rights, everyone will benefit from a healthier financial environment.
