Consumers facing ‘loyalty tax’ as banks fail to pass on savings rates

Savers should have had a boost by the Bank of England lifting interest rates last week – but instead are paying a “loyalty tax” as far too many banks and building societies have not yet passed along the increased returns, new data shows.

The BoE lifted the base rate from 3.75 to 4 per cent, the first rise in over three years, and economists largely expect another rate hike to follow either in December or February.

That should, in general, translate to financial services firms passing along the benefit by bumping up savings accounts by the extra 0.25 per cent – but Moneyfacts say seven in ten providers have failed to do so.

So far, their data shows 28 savings providers have lifted rates on accounts, but 20 of them have done so at a lower amount for at least one variable account.

Plenty more firms have yet to make their move, so some higher rates could follow, but as they are holding onto the better returns themselves savers should simply look elsewhere, says one expert.

“There are still over 100 savings providers yet to decide on making a rate increase to their on-sale variable rate deals, but savers should not wait around for news,” urged Rachel Springall, finance expert at Moneyfactscompare.co.uk.

“Instead, the top rate deals remain on offer from challenger banks and building societies, so now is an ideal time to switch and ditch an old account to escape the ‘loyalty tax’ from their bank.”

Immediately after the base rate increase, Chase confirmed that their easy access saver would rise from 4.5 to 4.75 per cent for new customers, while the likes of Nationwide and others have since raised rates too.

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But others have been hesitant, while the current top rate on the easy access market – with Lemfi – has also been lifted to 5.26 per cent, including a six-month bonus.

“A rate rise can also be passed on to some savers with specific account types, or balances,” explained Ms Springall. “For example, with first direct, on the face of it Bonus Savings Account customers with up to £50,000 saved will see their rate jump by 0.65 per cent to 3.93 per cent, but higher balances are only getting a measly 0.05 per cent rise, to 1.09 per cent, as are savers with its Savings Account, which now pays just 1.09 per cent after a 0.05 per cent rise this week.

“Meanwhile, other providers like Chip have made rate cuts. Among the biggest banks, the average return on their most flexible savers is just 1.17 per cent. Shopping around is essential, especially to make gains in real terms amid rising inflation, yet over 160 variable rate savings accounts pay less than 1.50 per cent.”

Further data from Moneyfacts show the average rate on savings accounts has risen to 3.84 per cent, an increase of just 0.03 per cent since 5 November. The average rate was last above 4 per cent in January 2024, they say.

For cash ISAs, Skipton have opened a 15-month fixed rate cash ISA at 4.9 per cent, while for easy access cash ISAs, Trading 212 offer a 4.8 per cent rate including a 12-month bonus. That bonus rate is accessible with this promotional code from The Independent.

While plenty of places such as Zopa, Tembo, Cahoot and Sainsburys Money are paying between 4.3 and 4.6 per cent on non-ISA savings accounts, comfortably above the rate of inflation, it remains the case that some of the bigger names have accounts offering very poor returns.

Moneyfacts data highlighted an easy access account selection from high street banks paying well under the average rate, including the Barclays Everyday Saver (paying 1.00 per cent), HSBC’s Flexible Saver (1.09 per cent), Lloyds Bank’s Easy Saver (0.75 per cent), NatWest’s Flexible Saver (1.00 per cent) and Santander’s Easy Access Saver (2.00 per cent).

While several of those will have other specific accounts paying higher rates, it highlights the need for consumers to not just stick with the default account they’ve been given by their provider and shop around for more competitive returns on their money.

On a £20,000 savings pot, a saver would be missing out on £800 if their cash was held at a rate of 1 per cent instead of 5 per cent – earning just £200 over a year instead of £1,000 in interest.

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