Interest rates: Banks not passing on £23bn to savers

Work no longer pays what it used to. Inflation is eroding our earnings and banks aren't passing on higher interest rates to savers. Pensioners like Carol say their money isn't working as hard as it used to. I've been trying to create a financial buffer. And every time I get a little bit saved, something happens. So that's going to be at the moment the cost of living crisis. If I want to actually have a life, I have to work.

Back in December 2021, the Bank of England's interest rate stood at just 0.1%. With the average savings rate on the high street at 0.2%. But while the Bank of England has since hiked its main interest rate to 4%, average savings rates among high street banks have only risen to 1.88%. It means that those with £30,000 of savings only stand to make £569 in interest each year.

That's less than half of what they would have earned if the rate rises had been passed on in full. Retail banks have been quick to pass on the Bank of England's rate hikes to mortgage holders. But savers haven't had the same treatment. It means the gap between what banks charge borrowers and pay savers has widened, helping to boost their profits. And this amounts to billions of extra pounds for the banks at the expense of their customers. Politicians are calling for change. It is pretty preposterous that at a time when the Bank of England is raising rates, that they're not passing on that increase in rates to their savers.

And I think the way that we developer savings have it in this country again is if savers feel that they're being treated fairly by their banks. But it's not just a question of fairness. The Bank of England has been raising rates to combat inflation. If retail banks actually passed these onto savers, it would achieve the central bank's aims faster. By compelling banks to pay better rates to savers, that would improve what we call the transmission of monetary policy. And ultimately, it is likely by having monetary policy working better, the central bank will have to raise rates less. Banks are reaping the benefit of higher interest rates now, but it comes after a decade of ultra-low interest rates that crushed bank margins.

Some argue that if customers want better returns, they should shop around for better deals. Garepreet Narwan, Sky News.