🔔 Banks earn billions by parking cash with the Bank of England

As we have reported for years now, we know that the high street banks pay some of the worst savings rates to their long-suffering customers. But recent analysis carried out by The Times has highlighted that these same banks are benefitting from the rise in the base rate to the tune of billions of pounds – while passing on just a fraction to savers.

The Times’ analysis shows that Barclays, HSBC, Lloyds, NatWest and Santander had as much as £673.5 billion in cash, at the end of June this year, which is held at central banks, such as the Bank of England. While deposited with a central bank, these funds will earn interest at the present base rate, which in the UK is 1.75%.

When the base rate was 0.10% the amount of interest the high street banks would have earned on this cash would have been £673.5 million over the course of 12 months, but with the base rate rising to 1.75% the potential earned interest has swollen to over £11 billion. And the banks need to do nothing to benefit – simply use the Bank of England as a piggy bank to store any excess cash that has not been used for mortgage lending or money they need to hold for capital purposes.

However, these same banks are paying 0.15% - 0.25%, 0.40%, 0.20%, 0.20% and 0.10% respectively on their standard easy access accounts, although Santander also has an eSaver account paying 0.75% AER.

Until 1st September, for those with balances of under £50,000, Barclays had not increased the rate on its Everyday Saver account from 0.01%. Today, although the base rate has increased by 1.65%, savers with less than £100,000 in the Everyday Saver are still earning only 0.15% - an increase of just 0.14%.

And although Santander does have its internet based eSaver account which pays a healthier rate of 0.75%, those customers who are in the standard Everyday Saver account are only earning 0.10% - that is £10 on every £10,000 deposited, whereas Santander will earn £175 from the Bank of England!

Looking at the Banks’ financial reports, they have all announced healthy profits this year, and they state that this is partly due to the impact of base rate rises. Santander says “Net interest income up 11%, following the impact of base rate increases and higher mortgage lending”. Santander is one of the banks to have increased its standard mortgage rate by the full 1.65% - this is the rate that mortgage customers will receive once their fixed rate ends.

The Times analysis cites that collectively, the five are earning £3.6 billion more in interest income in the first half of this year than they did last year.

It’s clear that the banks will not help their customers – so savers need to help themselves to make sure they are earning as much as possible – and in fact by choosing the best rates they can earn even more. Al Rayan this week increased the rate on its Everyday Saver (Issue 3) for both new and existing customers, to 2.10% AER. On a deposit of £10,000 Al Rayan customers could earn an Expected Profit Rate of £210 a year, assuming the rate remains the same.

And if you don’t need immediate access, you could earn even more. At the time of writing, Ahli United Bank is paying 3.50% AER fixed for 12 months via the Raisin UK platform and if you are new to Raisin UK you could earn a welcome bonus of £30 when you apply via our link, boosting the effective rate to 3.80% gross/AER on a deposit of £10,000 (this is the minimum deposit required to benefit from the bonus).

If you are eligible for a bonus, you must claim it by emailing [email protected] with the subject 'Raisin UK Bonus' - using the same email address as you used to register. In the email, please add your full name. You can make the claim as soon as you have been notified that your savings account has become active.

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