Lloyds Bank has been accused of putting the squeeze on customers to boost its profits at a time of record-low interest rates.
The lender, which was rescued by taxpayers during the financial crisis, made a profit of £2bn in the three months to September 30, up from £811m a year earlier.
But it came under fire after revealing its so-called net interest margin – the difference between what it pays savers and charges borrowers – is at its widest since 2006.
On a roll: The lender, which was rescued by taxpayers during the financial crisis, made a profit of £2bn in the three months to September 30
Campaigners accused it of punishing savers by offering dismal returns on their nest eggs while failing to give borrowers the full benefit of low interest rates.
Justin Modray of campaign group Candid Money said: ‘It’s quite shocking that the margin has increased so significantly. It just goes to show that savers continue to get an exceptionally raw deal from some banks and building societies, while borrowers aren’t feeling the full benefit of rate cuts.’
Banks make their profits by collecting deposits from savers and lending them to borrowers.
The gap between the rate of interest they pay depositors and the rate they earn from people with debts is called the net interest margin. When it is higher, banks make more money, by paying less to savers or charging borrowers more.
Lloyds’ margin for the quarter climbed to 2.9 per cent, up from 2.69 per cent a year earlier.
Customers with the bank’s popular Easy Saver account earn a measly 0.05 per cent a year in interest – or just 50p for every £1,000 they have saved. Meanwhile, the firm’s standard Classic credit card has a 25.9 per cent APR. This is up from a figure of 19.9 per cent in 2007, according to researchers at Moneyfacts.
The bank also offers a market- leading 5.7 per cent card but this is only available over the internet.
Lloyds’ net interest margin is now at the highest level in more than a decade, before the financial crisis decimated banking.
This is particularly shocking because margins should in theory fall as the Bank of England’s official rate comes down, slashing borrowing costs for ordinary people. But at the end of 2006 – when Lloyds’ margin was last higher – the Bank rate stood at 5 per cent.
That rate has since been hacked to an unprecedented low of 0.25 per cent – but despite this cut, the lender has protected its profits.
There is likely to be further pain for borrowers when the rate goes up, with the Bank of England expected to hike it to 0.5 per cent next Thursday, triggering a rise in millions of homeowners’ bills.
Lloyds is thought to have £90bn of mortgages which track the bank rate and will automatically increase in price, adding £1bn to its coffers.
The lender could also decide that it should increase rates on another £50bn of home loans where some discretion applies.
Bosses at the bank said they would consider a special dividend or share buyback at the end of the year. Shares in the bank climbed 0.8 per cent, or 0.54p, to 67.94p.
A Lloyds spokesman said the bank’s margin was up partly because it had bought rival credit card business MBNA, and partly because of changes in wholesale funding costs.