Seeking expert commentary: why are banks raising mortgage rates but not savings rates?

Banks have long benefited from savers complacency, with every penny of interest they don't pass on potentially boosting their profits. Savers shouldn't reward banks for their loyalty when better, and sometimes considerably better, rates are available elsewhere. Switching now is easier than ever, with savings platforms allowing you to move money between providers without repeated identity checks and paperwork. Ultimately, the responsibility for securing the best returns rests with the saver. When it comes to savings, loyalty rarely pays, but complacency can be costly, especially if rate increases are being withheld.

It isn’t quite as simple as banks putting mortgage rates up by 0.25% and pocketing the difference on savings, because fixed mortgages are largely priced against market funding costs and swap rates. However, there is undoubtedly a loyalty penalty in parts of the savings market. Banks compete aggressively for new deposits when they need them, while existing customers can be left languishing on comparatively poor rates. The message for savers is simple, don’t confuse loyalty with value and check your rate regularly and be prepared to vote with your feet.

Mortgage and savings rates are not mirror images of each other. Fixed mortgages are largely driven by wholesale funding costs, market expectations and competition, whereas savings rates depend heavily on how much a bank actually wants or needs new deposits.

The uncomfortable part for savers is customer inertia. Banks know many people will leave cash sitting in an existing account even when much better rates are available elsewhere, so there is less commercial pressure to increase those rates quickly. That is why the best savings deals can be competitive while longstanding customers receive far less. Savers should not assume loyalty will be rewarded; if their rate is poor, they should be prepared to move their money.

I spent 35 years in corporate banking and finance before setting up my own business in 2020. When rates rise, borrowing costs jump immediately but savings rates lag badly at the big banks. The drivers are structural: margin expansion and customer inertia. Lenders reprice variable mortgages almost overnight to protect margins and track the swap market. Savers get no such courtesy. A vast slice of the big banks’ core deposit base is captive, held by inertia and brand loyalty, so there’s little pressure to lift yields on standard savings accounts. Flush with surplus liquidity, high-street incumbents have no need to bid aggressively for deposits, so they widen net interest margins at the expense of passive savers. Management will cite default risk and capital requirements. In practice, this is hard to regulate. Only genuine competition for deposits will push banks to earn loyalty by giving fair value to borrowers and savers alike.

Banks have more incentive to compete for savings when they need to attract money. If existing customers leave their cash in low-paying accounts, there is less commercial pressure to improve the rate.

In specialist property finance, we see banks using retail deposits to fund lending to landlords, developers and businesses. That gives savers a reason to look beyond familiar high-street names: their money is valuable funding, and providers competing for it have a reason to offer more.

New fixed mortgage rates respond to wholesale funding costs and expectations about future interest rates, so they can move before a Bank of England decision. Savings rates also reflect how much a bank needs deposits and how hard it has to compete for them.

Banks should clearly tell existing customers when a comparable account in their own range pays more and make switching straightforward. Savers shouldn’t have to become rate detectives to get a reasonable return.

Banks are incredibly quick to reprice mortgages when interest rates rise, but somehow become considerably less enthusiastic when it comes to rewarding savers.

Part of the explanation is that mortgage pricing is driven by wholesale funding costs and swap rates, not simply the Bank of England base rate. Savings rates are also a commercial decision, and banks don't necessarily need to increase them immediately.

But let's be honest: customer inertia plays a huge part.

Banks know many customers won't switch savings accounts, even when better rates are readily available elsewhere.

My frustration is that loyalty seems to be rewarded with higher mortgage rates and lower savings rates.

Banks should be competing for existing savers, not relying on them to remain unaware of better deals elsewhere.

Customers shouldn't have to become professional rate hunters just to receive a fair return on their own money.