in face of rising cost of living
How Big Bank Executives Justify Savings Rates and Branch Closures Amidst Increasing Cost of Living
Woman with computer and piggy bank
Savers have access to a variety of competitive savings options, bank bosses argued when criticized for poor interest rates.
The CEOs of four of the UK’s largest banks have been dragged before MPs questioning the generosity of their savings rates.
The UK chief executives of Lloyds, NatWest, HSBC and Barclays said business had improved as savers looked around.
They also said store closures were in response to changing consumer habits.
The choice of savers
The Bank of England’s policy rate was at historically low levels for a decade until December 2021 and has risen steadily since then. It is now at 4% after rising from 0.1%.
Finance Committee MPs said their constituents had complained that mortgage rates had risen faster than the yields savers would be offered if the policy rate went up.
The quartet of bank chiefs, described as the highest-paid body to sit before the committee in some time and collectively earning more than £10million a year, argued that this debate was wrongly focused on the interest rate being offered on easily accessible savings accounts usually have a return of less than 1%.
They argued that regular savings offers market-leading interest rates and that instant access products are often a “gateway” to higher-interest offers.
Barclays’ Matt Hammerstein, Lloyds Banking Group’s Charlie Nunn, HSBC’s Ian Stuart and NatWest’s Dame Alison Rose argued they would also encourage customers to start a savings habit.
“Only one in four people has £100 in savings in their account,” said Dame Alison. “There are real concerns about young people’s financial confidence. We have also made targeted savings for young people’s accounts.”
Saving levels increased significantly during the pandemic as consumers’ spending options were curtailed. The rising cost of living has since dampened some of that savings.
But the bosses – whose banks control 60% of the market – argued that as interest rates rose, many people actively sought better deals. Mr Nunn said price comparison websites are highly developed in this area.
While some poked around, millions still had little confidence in making good financial decisions and therefore needed good guidance.
Graph showing interest rates rising to 4%
Many households also face the prospect of having to pay more to repay their mortgages in the coming year.
Mr Stuart pointed to a new fixed-rate deal launched by HSBC on the same day as the hearing, which was the first five-year deal with an interest rate below 4% since early October.
He argued that this shows that mortgage rates are falling, even though the policy rate is still rising, well below rates projected by the mini-budget.
Still, he said the “headwinds are ahead, not behind us” when he analyzed the number of people defaulting on mortgage payments.
Bank bosses have also been pressured to close branches, with all accepting that they had closed a multitude of buildings in recent years.
Mr Stuart said this was in response to the changing way people managed their money.
“Customer behavior started to change in 1982 with the advent of the ATM, and from that point it’s been on a journey and it’s accelerated,” he said.
He said 98% of transactions in December were digital, showing how the needs of a branch’s customers have changed over the past few decades.
Bosses gave examples of cash pods, bank hubs, mobile banking vans and smart ATMs as alternatives, with specialists often using different channels to talk to customers in their own homes.
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