Late last week, the Bank of England announced its latest interest rate hike of 0.75%, taking the base rate up to 3%. Many reports have emerged relating to the impact of the bumper rate hike on borrowers and homeowners, but one official has spoken out about the implications for savers. Jaidev Janardana, CEO of digital bank Zopa, has said that savers could find themselves losing out, and he urged people with savings to shop around for the best accounts.
According to Janardana, savers would typically do very well from the rate hikes seen since December 2021. Many would have enjoyed much higher savings returns with bumper rate increases like the latest one. However, he said that the situation this time around differs because inflation is having a significant impact on savings.
Some banks taking savers for granted
Janardana said that some banks take savers for granted and that this will hugely impact their finances.
He said: “This is the eighth time that the Bank has increased rates after it first lifted them to 0.25 percent from 0.1 percent in December last year. It is also the largest rise since 1989, taking the rate to its highest level since the global financial crisis in 2008.”
Janardana added: “Despite the rate hike, money in savings accounts will continue to shrink because of inflation. It is therefore doubly important consumers maximise every penny of savings interest to mitigate the impact.”
According to Janardana, some banks are harming savers’ finances because of their intense focus on revenues rather than ensuring their customers get better value. He gave an example of this by highlighting the rate paid by one high street bank despite the recent rate hikes.
He said: “For example, a leading high street bank is STILL offering a paltry 0.25 percent interest on its easy access account, meaning it pays just £25 for every £10,000 saved in a 10 percent CPI environment. A saver with £10k in the bank is losing out on almost £200 interest per year by sticking with their high street bank, versus seeking out the best rates; while a saver with £20k in the bank is losing out close to £400 per year by not switching.”
Many savers trust banks to increase interest rates in line with base rate movement automatically. While banks are quick to do this with borrowers, they tend to drag their feet with savers, and this means that many end up losing out. As a result, Janardana said that it was all the more important for savers to look at their options and consider switching.