High Street Banks Making Billions From Widening Savings-Borrowing Gap

New figures show that high street banks have been making billions of pounds from the widening gap between low savings rates and the high interest charged to mortgage and loan borrowers. According to This is Money analysis of the central banks’ results, they made an extra £7 billion last year from net interest margins – the gap between the rates they pay savers and charge borrowers.

Rate of Return: Low Savings Rates, High Borrowing Rates

High street banks factor in the base rate of the financial products consumers take out. When the Bank of England raises its base rate, savers earn more, but borrowers pay more. However, savvy consumers will have noticed that they currently pay 4 to 6 percent on most mortgage rates, while savers with big bank easy-access deals earn pitiful rates of 1 percent or below. The best savings rates, often offered by smaller banks or building societies, pay far more than this, with the top easy-access savings rates above 3 percent.

Banks Raking It In From Rising Base Rate

The 2022 results from high street banks, which have all been published, confirm that banks are making more and more cash from the gap between what they pay savers and charge borrowers. This gap is called the ‘net interest margin’ by banks and proliferatesr every single lender.

The UK’s most prominent banking giant, Lloyds Banking Group, includes Lloyds Bank, Halifax, and Royal Bank of Scotland. According to the group’s annual results, these banks had a net interest margin of 2.94 percent in 2022. Lloyds Banking Group made £13.1 billion in 2022, up 18 percent, or £2 billion, from 2021.

Barclays UK made an extra £691 million from its net interest margin rising from 2.52 percent to 2.86 percent from 2021 to 2022. The bank’s amount from this was £5.2 billion in 2021 and £5.89 billion in 2022.

For NatWest Group, which includes NatWest, Royal Bank of Scotland, Ulster Bank, and Coutts, the 2022 net interest margin was 2.85 percent, up from 2.3 percent in 2021. This meant the banking group made an extra £2.3 billion from the growing gulf between poor savings rates and the interest it charges borrowers. The banking giant made £7.5 billion from this in 2021, rising to £ 9.8 billion in 2022.

Related Facts

Santander UK made an extra £723 million from its net interest margin rising from 2.34 percent to 2.63 percent. The bank’s amount from this was £3.7 billion in 2021 and £4.4 billion in 2022.

HSBC’s net interest margin rose from 2.38 percent to 2.63 percent in 2022. The bank’s amount from this was £5.2 billion in 2021 and £5.9 billion in 2022.

Key Takeaways

• High street banks are making billions of pounds from the widening gap between low savings rates and the increased interest charged to mortgage and loan borrowers.
• Savvy consumers will have noticed that they currently pay 4 to 6 percent on most mortgage rates, while savers with big bank easy-access deals earn pitiful rates of 1 percent or below.
• The UK’s most prominent banking giant, Lloyds Banking Group, made £13.1 billion from their net interest margin in 2022, up 18 percent, or £2 billion, from 2021.
• Barclays UK made an extra £691 million from its net interest margin rising from 2.52 percent to 2.86 percent from 2021 to 2022.
• NatWest Group made an extra £2.3 billion from the growing gulf between poor savings rates and the interest it charges borrowers.
• Santander UK made an extra £723 million from its net interest margin rising from 2.34 percent to 2.63 percent.
• HSBC’s net interest margin rose from 2.38 percent to 2.63 percent in 2022.

Conclusion

High-street banks are profiting from the widening gap between low savings and increased borrowing rates. While this benefits the banks, it is not for the consumer. Therefore, consumers must know this trend and the best savings rates available, often at smaller banks or building societies.