Savings and banking round up

03/05/2018

Each month, we write a monthly column in Around Town Magazine, which goes out to 50,000 homes in Essex. This month’s column is reproduced here for website readers.

Are interest rates on savings really on the rise?

There’s been lots of media commentary this month about savings rates being at the highest level since 2015 and suggestions that this will continue through the year. We had a look back through the best buy tables to see if this is the case – and here are the results:

As you can see, there’s been limited movement in savings rates with only 5 Year Fixed rates seeing a significant change since the turn of the year. We think this is caused purely by competition in the 5 Year market as we have seen Bank of London & Middle East (BLME), Close Brothers, PCF Bank, Secure Trust and Vanquis vie for position with a number of rate changes coming from this group. This competition has helped drive pricing up.

There’s been much speculation from commentators in the market that pricing will increase this year because of the end of the Funding for Lending Scheme (FLS) and Term Funding Scheme. These Schemes allowed banks to borrow money more cheaply than attracting it from savers, reducing their demand for savings and therefore the interest rates they were offering. While we agree the ending of these Schemes will help improve interest rates for savers, we don’t believe savers will see the benefit of this in 2018. We expect that many of the banks using these Schemes have enough money for their 2018 lending plans and will therefore not need to fight for savers money.

While we expect to see a continued gradual increase in interest rates, we don’t expect to see dramatic changes in pricing this year.

TSB – Truly Shambolic Bank?

At the time of writing, many TSB customers had endured 10 days of being unable to access their accounts, after the Bank’s migration to a new IT system.

TSB was revived in 2013 after European regulators required this in return for the government bailing out the Lloyds banking group. Despite it being almost five years since the split from Lloyds, TSB had continued to use Lloyds IT systems until the move on the weekend of 21^st and 22^nd April to migrate to a new system.

Two things have particularly upset customers. Firstly, the length of the outage and secondly the poor response from its chief executive, Paul Pester. UK banking customers are used to outages and system downtime but to be unable to access accounts for 10 days, with no sign of an end to the issues, is beyond the pale for many. The lack of response from the Bank’s CEO irritated further already irate customers struggling to get help in branches, on the telephone or via social media.

TSB has been one of the major winners under the current account switching service, which guarantees to move your account in seven working days with all payments, direct debits and standing orders transferred automatically for you. It will be interesting to see if that trend reverses in light of the problems.

Customers who want to look at new banks without legacy IT issues may well want to consider switching to newcomers Starling or Monzo, which are built on the latest technology.

Starling offers 0.50% interest on balances up to £2,000 and 0.25% above this, up to £85,000, as well as a contactless Mastercard, real time updates and money management tools to show where you’ve spent your money. It was voted Best Current Account Provider and Best British Bank at the British Bank Awards for 2018.

Monzo was set up originally as a prepaid card but now has over 500,000 current account customers who love its built in budgeting, money management tools, no fees to use the card abroad and excellent foreign exchange rates. Monzo has a cult like following from its customers and is regularly praised on social media for its high service levels and communication. 

Switchers interested in moving to a household name may be attracted by the new switching perks from First Direct, who are offering £150 Expedia voucher, Bose headphones, Fitbits and online courses as incentives to move. This is on top of a £250 interest free overdraft and 5% regular saving account.

Castle Trust set to become a bank

Investment, mortgage and development finance provider, Castle Trust announced that it is the latest firm seeking authorisation from the Prudential Regulation Authority to become a bank. 

The firm announced its founder, Sean Oldfield, was stepping down as CEO with the appointment of Martin Bischoff, Santander’s Managing Director of Retail Distribution, as his replacement.

Castle Trust has come under fire from the Telegraph for marketing its investments as fixed rate bonds, when they are subject to FSCS protection for investments, which protects up to £50,000, rather than as savings, which confers protection up to £85,000. Despite this, the company has attracted over £650m of investments.

If Castle Trust is successful with its application, it will be interesting to see whether the firm offers both savings accounts and investment bonds, or whether the investment side will be closed off. Savers will be hoping that the interest rates offered on its investment bonds are matched on its savings accounts but we think that is unlikely!

As always, we will publish this article on our website, with links to all the providers listed here, to make it easier to find more information.

Have a fantastic May everyone.