Why aren’t we earning more on our savings?

By Luke O'Mahony

A week after the Bank of England decided to increase the base rate, you could be forgiven for wondering why the returns on savings products accounts still haven’t gone up.

After all, most people with a variable rate mortgage will have seen their monthly repayments go up pretty quickly. So why don’t banks increase the amount that they pay savers?

Banks’ dilemma

The answer lies in the way that bank and building societies set the interest rates that they charge borrowers and pay depositors. These rates are set by committees – a group of people who take into account what rates will maximise the bank’s profits. Banks make money from widening their “spread”; the difference between what they charge borrowers and pays to depositors.

That helps illustrate why rates are so low: if a bank currently pays 0.1% to its savers and judges that, despite the Bank of England decision, it can keep its interest rate at 0.1% for a bit longer without losing many of them, then why wouldn’t it?

Another way

RateSetter’s model is different, in two key ways. Firstly, lending via RateSetter carries risk – lending is an investment not a savings deposit. Because our customers share in the risk of lending, they also benefit from the reward, in the form of higher returns.

However we’re also different in that the interest rates on RateSetter’s markets aren’t set by a committee, nor the Bank of England. Instead, they’re set by the hundreds of thousands of people who use our platform. Our interest rates are dynamic and respond very quickly indeed to changes in supply and demand. You can see how our rates change over time here.

The bottom line is that RateSetter’s market rates will always be set by you, our customers.