🔔 Inflation and the Great High Street Bank Robbery

Author: Anna Bowes
19th May 2022

As has been widely expected, the latest Consumer Prices Index (CPI) inflation figure from the Office for National Statistics (ONS) has risen to a 40 year high of 9% in the 12 months to April 2022.  The main contribution to this figure is the price of gas and electricity, which rose significantly in April following Ofgem’s increase to the cap on energy prices – meaning a painful hike in the amount we all need to pay.

Fuel at the petrol pump is another key contributor to the rise of CPI. The average petrol price in April 2022 was 161.9p per litre compared with 125.5p per litre a year earlier. The average price of diesel was 176.1p in April 2022 – the highest on record.

In order to try and get inflation under control, the Bank of England has increased the base rate in the last four Monetary Policy Committee (MPC) meetings – which should drive up savings rates and in turn help savers. But of course, it’s not a simple as that.

Traditionally movements in the base rate are reflected, at least in part, in your mortgage and savings rates. Borrowing costs go up but this should be balanced with positive news to your savings rates. Interest rates go down and you’re earning less on your cash but saving money on your mortgage. Sadly, that process is rarely followed today, especially from the high street providers who still hold the most amount of cash from savers.

Are the High Street Banks treating their customers fairly?

After four base rate rises on the trot, taking it to the highest level since February 2009, surely the banks and building societies are doing what they can to support savers?

Well, some providers are better than others, but one thing is for sure, the high street banks are paying some of the worst rates on the market. In fact, they have taken advantage of the current situation. Back in 2018 when the base rate was at 0.75%, all of the key high street providers were paying more interest on their easy access accounts than they are now, even though the base rate is even higher today at 1%.

For example, in December 2018 the Barclays Everyday Saver was paying 0.25% - today it is paying just 0.01% having been cut to this level after the two base rate reductions in March 2020. Although Barclays cut the rate being paid when the base rate dropped, the bank has not increased the rate on this account at all, even though the base rate has risen four times since December 2021 – by a total of 0.90%.

On a deposit of £10,000, as inflation in the 12 months to April 2022 was 9%, anyone with money in this account has lost £826 in the last year alone, in real terms, due to the damaging effect of inflation.

See how inflation is affecting your cash savings by using our Inflation Calculator.

It's staggering that Barclays has yet to announce anything in the way of a boost for their savers. And while the others have announced changes, they appear to have done the bare minimum and ignored the fact there have been four base rate rises since December, not just one. They are still, in the main, only paying 0.10% - that’s £1 in interest per year, for every £1,000 deposited. The best easy access accounts are paying up to 1.50% AER.

If you leave your savings with your bank, you are being robbed. It’s as simple as that.

While it’s not just the high street banks that are still paying the lowest savings rates on the market, they do hold the largest proportion of the country’s savings – so surely they should have some responsibility? How can this be ‘treating customers fairly?’

But it’s not just the high street banks – it’s others who are the people’s choice that need to buck up their ideas.

As one of our customers pointed out to us this week, so-called loyal customers of NS&I are really being shafted. At the time of writing, the 1-year Guaranteed Growth Bond which is only available to existing customers is paying 0.10% - meanwhile the best rates on the market are paying up to 2.27%. On a deposit of £10,000 you would be missing out on £217 in gross interest. And because NS&I will automatically roll these accounts over on maturity if they receive no alternative instruction, there are bound to be many loyal NS&I customers earning a pittance with no access to their money.

The good news is that many of our Savings Champion customers are savvy and don’t leave their money to languish in these appalling accounts. The only way to get the banks to change their behaviour is to vote with your feet – so spread the word. Don’t let the high street banks take advantage of you and your friends and family.

If you’re worried about rising inflation and think you might be holding too much in cash, perhaps you'd like to explore other options, so why not get in touch.  We’re offering all those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our TPO colleagues, worth £500. You can find out more here.