We can’t compete: Banks complain Government savings scheme is too generous
Banks in the UK are concerned that the rates on offer at National Savings & Investment (NS&I) products are distorting the savings market.
According to the Times, David Postings, chief executive of UK Finance, told NS&I’s chief executive that the market-leading bonds had posed “several challenges” to the UK’s high street lenders.
Postings said the rates had created “distortive competitive pressures for intermediate and specialist deposit-takers, who are less able to absorb the costs to compete.”
Over the summer NS&I launched a one-year bond paying out a market-leading 6.2 per cent. The government backed bank withdrew the bond after nearly a quarter of a million savers bought them in a little over a month.
Now NS&I’s best one-year fixed-rate bond pays out 6.11 per cent.
Banks would need to put up the price of loans if it wanted to compete with NS&I’s market-leading rates, which Postings said would be a “difficult decision in the current economic environment”.
“Given the consequences for borrowers, it would be helpful to understand how this reconciles with the important requirement that you support a fair and competitive market,” he continued.
An NS&I spokesman said: “We are always happy to engage with UK Finance and the wider industry and will respond to their letter in due course.”
NS&I’s market-leading rates were partly designed to pressure banks into increasing the rates on offer to savers.
Banks have come under immense pressure from politicians and regulators for failing to pass on base rate increases to the £1.5 trillion savings market, particularly in easy access accounts, which make up 60 per cent of balances across the nine largest banks.
Throughout the savings rate furore, banks have pointed out that they offer better rates on time accounts. These products generally require consumers to lock up their funds for a certain period of time.
According to Moneyfacts data, the average savings rate on a one-year fixed term account is 5.4 per cent while banks offer 3.2 per cent on easy access savings accounts.