Bank bosses questioned by Treasury Committee over passing on base rate rises

Bank bosses were called before the Treasury Committee in February 2023 to explain why they had not passed on recent Bank of England base rate rises, which stood at 4% at the time¹. In their defence, the bosses said they had focused on raising regular saver rates instead, describing those accounts as more important to their customers¹.

The rates on offer from the largest banks were, at that point, higher than elsewhere in the savings market. According to Moneyfacts data correct as of 8 March 2023, the top regular saver rates were¹:

All but one of those accounts carried restrictions on withdrawals. The highest rate for a restriction-free account was 3.06% AER from Shawbrook Bank, and the top fixed-term bond paid 4.31% AER from SmartSave¹. Because interest on a regular saver builds only as money is paid in, a saver with a lump sum to lock away could often earn more from a fixed-term account¹. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, gave the example that paying in £100 a month for 12 months at 6% would produce around £34 of interest rather than the £72 a simple calculation on £1,200 might suggest¹.

Bank of England figures cited by Coventry Building Society showed more than £265bn of household savings sitting in accounts paying 0% interest¹. Regular savers commonly require a monthly deposit and are often open only to existing current account holders, and rates are usually variable¹. Coventry Building Society's First Home Saver paid 4% AER with monthly deposits of £1 to £1,000 over a 36-month term; paying in £1,000 a month for the full term with no withdrawals and an unchanged rate would produce £38,266.54, a maximum total interest of £2,266.54¹. Bath Building Society's Homestart Regular Saver paid 3.99% AER for homebuyers aged 18 to 34, and Principality Building Society's First Home Steps paid 3.25% AER, rising to 3.95% once the pot reached £7,501¹. Nationwide's Start to Save, a two-year bond paying a variable 5% AER, allowed up to £50 a month with no minimum deposit, and entered savers into prize draws of £250 if they increased their balance by at least £25 in each of the six months before a draw, the next being 22 August 2023¹.

Seasonal accounts were not on the market at the time of the report. Monmouthshire Building Society launched a Christmas Saver Bond in December 2022 paying 5.5% AER, a top rate at the time, and Yorkshire Building Society's Christmas Regular Saver launched in January 2023 paying a variable 4.5%¹.

Why it matters for households

The rates banks cited to MPs are headline figures on accounts with conditions attached. Four of the five accounts in the table were open only to existing current account holders of the same bank, or restricted withdrawals, or both¹. The gap between the top regular saver rate and the top restriction-free instant access rate, 3.06% AER, was more than three percentage points¹. Monthly deposit caps also limit how much of a lump sum can be moved into a higher-paying account, and the interest actually earned on a regular saver is lower than the headline rate because balances build up over the term¹. The £265bn sitting in accounts paying 0% interest represents money earning nothing while inflation was still rising¹.

What happens next

The report does not set out further Treasury Committee sessions or any response from the banks beyond the February 2023 appearance¹. The next Nationwide Start to Save prize draw was scheduled for 22 August 2023¹. Rates quoted were correct as of 8 March 2023 and are subject to change¹.