Is Marcus about to launch new products and cut its online savings rate?
An innocuous looking email dropped in to Savings Guru HQ a few days ago from Marcus, changing the terms and conditions on their Online Savings Account. However, the contents are potentially very significant.
The email detailed three changes to its terms and conditions. The first amendment is a pretty standard reminder not to share your security details with anyone else. The second is much more interesting though as it explains that the £250,000 limit only applies to the Online Savings Account and 'won't apply to any other Marcus accounts you might hold with us, which will have their own pay in limits'. Why does a bank that has only one product need to make it clearer that the upper limit only applies to that account? The only reason that makes sense is because new products are imminent.
This begs the question of which products might Marcus be looking at. Looking at their US business, Marcus followed the launch of its online savings accounts with a range of high yield CDs, which we know as fixed rate bonds or fixed term deposits in the UK. These offer very competitive interest rates on terms from 6 months to 6 years. It's not a giant leap to suggest that such a launch is planned for early in 2020. With the market here only commanding a 30bps (0.30%) premium on their current online savings account rate of 1.45% for 1 Year money, it makes good sense for Marcus to look to acquire longer term money at a small premium to their current rates. Such a move will be good news for savers - Marcus' launch in to the easy access market dragged rates 10bps higher and will be likely to have a similar impact on fixed rate bonds.
The third change to the terms and conditions is potentially much less encouraging news for savers. This changes the notice period which Marcus has to give its savers of a change to their interest rate. Currently, Marcus offers a very generous two months' notice of any reductions. From 18th December 2019, this will drop to the minimum prescribed by the Financial Conduct Authority, the UK regulator, which is two weeks.
Marcus' recent rate reduction on its online savings account was achieved by reducing the twelve month bonus paid on the account from 0.15% to 0.10%. Many readers of our September column took the opportunity to extend their bonus period and avoid the impact of the cut for a year. Those that didn't saw a fall in their overall rate to 1.45%, as Marcus was not required to give any notice of the cut of the bonus. However, with the bonus being just 0.10% now, this doesn't leave Marcus with room to manoeuvre in the future. With interest rates on savings accounts falling back across the board since July this year, this looks like a move to give Marcus flexibility to cut the underlying 1.35% rate on the account, should it need to, early in 2020.
While the market isn't such that Marcus needs to cut rates further, going through the time and cost of the exercise of changing its terms and conditions suggests that Marcus is at least considering the option. At worst, it has a rate cut planned already for Christmas or early in the New Year. My view is there is probably no plan in place to cut rates but that the falling market means Marcus are making this move to position themselves to be able cut their underlying rate should the falls continue. If that were to happen, I'd anticipate a 0.10% reduction and, unlike the cut on bonus, there isn't anything savers can do in advance to prepare for this one.