Savings of over a trillion pounds is held in low-interest savings accounts

More than £1 trillion of the nation’s savings is sitting in accounts earning less than 2 per cent, while the base interest rate is 5.25 per cent, according to an analysis of Bank of England credit data.

The figures, which include money held in savings and current accounts, will add to criticism that Britain’s biggest banks are profiting at the expense of their customers by not passing on higher interest rates in full.

In contrast, lenders have raised their rates on mortgages sharply since the Bank started increasing its base rate in December 2021, although some rates are now coming down.

According to data from the Bank of England, the average interest rate on an easy-access savings account was 2.02 per cent in December, much lower than the present base rate. A total of £1.15 trillion was earning less than this average. The average return on fixed-term accounts was 3.71 per cent in the same month.

“Banks aren’t passing on the central bank rate and instead are taking the profit for themselves,” Martin Sokk, co-founder and chief executive of Lightyear, the investment platform that analysed the savings data published by the Bank of England, said.

Since December 2021, the average rate on a two-year mortgage deal has increased from 2.34 per cent to 5.56 per cent, while the rate on five-year products has leapt from 2.64 per cent to 5.18 per cent, according to Moneyfacts, a financial data provider.

The Financial Conduct Authority, the City regulator, said: “We have been looking closely at the value firms provide to savers and we have seen some saving rates improve significantly. However, we expect to see continued improvement from some firms. We also continue to encourage customers — including those with money in current accounts — to shop around for the best deals.”

A wide difference between lending and savings rates has generated significant profits for banks, with the sector’s loan margin, calculated as net interest income divided by total lending, reaching its highest level since 2006. The metric is used as a barometer for banks’ profitability.

UK Finance, which represents banks, said: “Savings and borrowing rates aren’t directly linked and therefore move at different times and by different amounts. Savings rates increased significantly over the course of last year and there are a lot of good products available in a competitive market.

“Many of our members have been proactively contacting their customers to let them know about different savings accounts that are available. We always recommend people shop around for the product and interest rate that is suited to their needs.”

The high share of cash — 66 per cent of all deposits — sitting in current accounts with relatively low rates indicates that people are not shopping around for deals that provide a better return on their money, helping banks to keep savings rates lower than the base rate. The best account on the market is a one-year fixed-term deal with a 5.16 per cent interest rate offered by SmartSave, according to Moneyfacts.

Britain’s biggest banks are set to release financial results for 2023 in the next few weeks, illuminating the boost to yearly profits from wider net interest margins.

Analysts at RBC, the investment bank, said: “We expect the earnings environment to improve as we go through 2024, providing a solid launchpad for 2025.”

Lloyds, Barclays, HSBC and NatWest, the Big Four of Britain’s high street banks, made profits of £41 billion in the nine months to September 2023, up from £23 billion in the same period in 2022, according to an analysis by Unite, the union.