Personal Savings

Treasury written question – answered at on 18 May 2022.

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Photo of Lord Birt Lord Birt Crossbench

To ask Her Majesty's Government whether they plan to assess (1) whether the market for savers is working effectively, and (2) why the interest rates offered to savers by the major banks are not rising in line with the Bank of England base rate.

Photo of Baroness Penn Baroness Penn Baroness in Waiting (HM Household) (Whip)

The Government recognises that over recent years low interest rates have made it challenging for people’s savings to grow. This is why the Government remains committed to supporting savers of all income levels and at all stages of life to save and has introduced a range of measures to support this.

The amount of money that individuals can save into their ISAs each year has been increased to a record £20,000 and a Personal Savings Allowance of up to £1,000 for basic rate taxpayers and up to £500 for higher rate taxpayers has been introduced. These measures mean that around 95% of people with savings income pay no tax on that income, giving consumers more flexibility to shop around when choosing the best savings product for them.

Alongside these measures, the Lifetime ISA allows younger people to benefit from a 25% government bonus on up to £4,000 of savings each year towards a first home, or later life. While the Help to Save scheme supports working families on low incomes to build up a rainy-day fund by offering a 50% bonus on up to £50 of monthly saving.

However, the pricing of financial products, including the interest rates offered on savings accounts, is a commercial decision for firms and the Government does not plan to intervene in, or make assessments of, such decisions.

The independent Monetary Policy Committee (MPC) of the Bank of England makes monetary policy decisions independently of the Government. The MPC sets the base rate of interest, which is known as the Bank Rate. This is the rate of interest the Bank of England will pay on reserves held with them by commercial banks. MPC decisions over Bank Rate guide commercial banks’ decisions over retail interest rates, i.e. interest rates they charge on loans and pay on deposits. However, commercial banks also make commercial judgements that influence the degree of pass‐through from changes in Bank Rate into retail interest rates, with conditions in financial markets and in the banking sector also influencing interest rates paid on deposits or charged for lending.

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