Banks and building societies are failing to pass on full interest rate rises to UK savers

They are raising mortages higher and faster, finds research carried out for the BBC News website. According to the BBC News website's research into UK banks and building societies, UK savers have missed out on a fifth of the possible gains from the last two recent interest rate rises from the Bank of England.

However, on average, banks and building societies have raised mortgage rates faster and by a higher amount than savings rates.

The research commissioned by the BBC suggests that the UK's leading banks and building societies passed on only a part of two Bank of England (BoE) interest rate increases to savers.

Moneyfacts, an independent financial information firm, on behalf of the BBC News website examined how most UK savings providers and mortgage lenders had reacted to the two most recent BoE interest rate hikes – one in August and the other in November.

The BoE raised rates by 0.25 percentage points each time, taking rates from 4.5% before August to 5% in November.

The research found that savings account providers passed on average 0.42% of the increase to Individual Savings Account holders and between 0.38% and 0.42% to non-ISA savings account holders.

In effect, savers have been short-changed by around a fifth of the rate increase by 0.5 percentage points.

As for mortgage account holders, rates rose more than the BoE's actual rate increase. On average, mortgage rates rose by 0.51 percentage points.

The research also indicated that banks and building societies were far quicker passing on the interest rate burden to mortgage customers than giving the rate rise benefits to savers.

On average it took lenders 20 days in August to raise mortgage rates; in November they moved even quicker with a 14 day delay to increase interest rates.

On the flip side, savers endured a greater time-lag with rates being increased after and average of 30 days in August and 23 days in November.

The average delay between raising mortgage and savings rates was ten days in both August and November.

There were some notable laggards:

Northern Rock, for example, raised its mortgage rates by 0.25 percentage points each time the BoE did. Following the BoE rise in August, Northern Rock took 29 days to respond but in November it moved in just five days.

Northern Rock savers faired less well. The bank raised rates for standard savings accounts by just 0.27 percentage points (0.16 percentage points in August and 0.11 percentage points in November). Both times Northern Rock took 29 days to raise rates for savers.

Northern Rock did, however, raise rates on one of its ISA savers just above BoE base rates.

Commenting on the research, Lisa Taylor of Moneyfacts told the BBC:

"The combination of raising mortgage rates by a greater amount – virtually 0.1 percentage points on average – and more quickly than savings rates, undoubtedly nets the banks and building societies a tidy profit.

"It is clear that many institutions are passing on the full rate rise to customers who hold best buy accounts, in many instances these accounts are operated via lower cost direct channels such as telephone or internet.

"Many branch based accounts which were already paying inferior rates have not seen increases in line with recent base rate rises which means the gap between these accounts and best buy rates is widening.

"Consumers need to check how much their savings account pays, if it is out of line with best buy rates, then perhaps it's time they voted with their feet."

"We all know that running a home can be costly so great savings are essential
and helpful to a balanced home life".

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