The Financial Conduct Authority (FCA) has warned that loyal customers of major UK banks may be facing a 'loyalty penalty' as interest rates rise, with some savings accounts offering as little as 0.25% interest despite the Bank of England base rate being 4.25%.
In a letter to the Treasury committee, FCA chief executive Nikhil Rathi said the harm from this practice likely increased as the base rate rose. The regulator has challenged banks that made relatively small increases to variable rate savings products in 2022 and saw a material time lag in passing rate rises to savers compared to mortgage borrowers.
Examples of low-paying accounts include Barclays Everyday Saver at 0.65%, Santander Everyday Saver at 0.7%, and Virgin Money's Everyday Saver at just 0.25%. Lloyds' Easy Saver offers 0.65% unless the saver has £25,000 or more.
Rathi said the FCA's upcoming 'consumer duty', effective from 31 July, will require financial firms to focus on delivering good outcomes for customers, including fair pricing. He added that the regulator is open to considering 'more onerous interventions' if the loyalty penalty harms are not adequately addressed.
Treasury committee chair Harriett Baldwin said the regulator confirmed that the UK's biggest banks are profiting from interest rate rises and that loyal savers are being increasingly harmed. The committee will monitor banks' first-quarter results to see if they continue to squeeze profits from loyal savings customers.
