FLAGSTONE UPDATE 23 JANUARY 2020
WHAT DOES 2020 HOLD IN STORE FOR DEPOSIT ACCOUNT RATES?
As we look to the year ahead and try to predict what it may hold in store for the economy and deposit account rates, the outgoing year has signed off with a flourish of results reflecting the economic headwinds borne out of the political uncertainty which epitomised 2019.
Key indices point to economic downturn in December
The IHS Markit/CIPS purchasing managers’ index (PMI) for December showed that the UK’s manufacturing sector suffered its sharpest drop in output in seven and a half years and that housebuilding activity declined for the seventh month running.
Consumer spending, which has mitigated the impact on the economy of lower investment by businesses since the Brexit referendum of 2016, also fell significantly. The British Retail Consortium (BRC) reported an annual drop in sales of 0.9% for November and December combined, and 0.1% for the full year - the first negative year on record since the BRC began reporting results in 1995.
As a barometer of the economy’s health at the close of the year, the British Chamber of Commerce’s (BCC) quarterly survey painted a similarly bleak picture, with results highlighting service sector deterioration and further contraction of export orders.
Rob Kent-Smith, Deputy Director and head of GDP (Gross Domestic Product) analysis the Office for National Statistics, said, 'Long term, the economy continues to slow, with growth in the economy compared to the same time last year at its lowest since the spring of 2012.'
“The latest GDP data adds to signs that the UK economy stagnated at best in the fourth quarter of last year.”
Chris Williamson, Chief Business Economist at IHS Markit - 13 January 2020
Can the economy bounce back in 2020 and what are the implications for the deposit market?
Having spent the last few weeks wishing friends and colleagues a ‘Happy New Year’, will it indeed prove to be a better year from an economic perspective, and what are the key events this quarter which will determine its direction and in turn potentially influence Bank of England policy and base rate decision making?
To drive economic recovery, BCC Director General Adam Marshall has called on the UK Government to “take big decisions to stimulate growth” and said that “the end of political deadlock must also bring action to renew business confidence and tackle the prolonged stagnation that’s affecting so much of the UK economy”.
On March 11, Sajid Javid will map out the Government’s vision for the economy in his budget statement. The Conservative’s majority in the House of Commons now gives him significant scope to radically reform taxes and public spending. Although neither the Queen's Speech in October nor the Party’s election manifesto referenced income tax cuts or changes to stamp duty, he could use this new-found latitude to push through policies on both to stimulate the economy.
In March, Andrew Bailey, the Bank of England’s former Chief Cashier (2004 – 2011) and Deputy Governor (2013 – 2016) will re-join the institution as Governor, returning from the Financial Conduct Authority which he has headed up for the past four years. He will be in role in advance of the Monetary Policy Committee (MPC) meeting on the 26th of March, but outgoing Governor Mark Carney has already indicated the central bank’s preparedness to cut the base rate to boost the economy.
“If evidence builds that the weakness in [economic] activity could persist, risk-management considerations would favour a relatively prompt response”.
Mark Carney, Governor of The Bank of England – 9 January 2020
Carney also remarked that there was an “open question” as to whether the UK’s monetary policy framework “should be adjusted to embed a commitment to hold rates lower for longer”.
That two of the nine members of the MPC (Jonathan Haskell and Michael Saunders) voted for a 0.25% reduction in the base rate from its current 0.75% level in both November and December indicates that calls for a potential rate cut are already on the MPC’s agenda and support for it will gather momentum if indicators of an imminent recovery are not forthcoming.
MPC member Silvana Tenreyro told a Westminster conference a fortnight ago that she would vote for a rate cut “in the coming months” if there was no sign of a pick-up in the economy. She said that if uncertainty over a post-Brexit trade deal between the UK and the EU continued to weigh on demand, “my inclination is towards voting for a cut in rates in the near term”.
In an interview with the Financial Times last weekend, MPC member Gertjan Vlieghe also confirmed that he would consider voting for a rate cut.
“I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer.”
Gertjan Vlieghe, Bank of England Monetary Policy Committee member
Early indicators from high street retailers suggest that any post-election ‘bounce’ in consumer confidence has failed to translate into increased spending over the Christmas period to kick-start the economy and provide some much-needed impetus going into the new year. If key economic indices continue to show that there has been no material post-election and/or post-budget ‘bounce’, or if Brexit negotiations are perceived to be getting bogged down and creating further uncertainty, then there is a greater likelihood that the MPC will cut the base rate to give the economy a shot in the arm through the stimulus of cheaper lending.
What would a cut to the base rate mean for deposit rates?
A reduction in the BoE’s base rate would put additional downward pressure on deposit interest rates. In 2019 across the UK Savings market there were 750 rate cuts to existing savings accounts, compared to just 137 rate increases. A reduction in the base rate will compound that trend and make it all the more important for savers and finance directors to be vigilant and pro-active if they are to continue to optimise the returns from their cash deposits.
"Shop around, don’t be limited by the mainstream banks and be sure to look at those providers that may be less familiar."
Shane Hickey – Finance Journalist, The Observer
A vigilant, pro-active approach is key to optimising returns
Monitoring the market to identify the best deposit rates and opening multiple accounts to achieve the best possible returns may sound prohibitively time-consuming. Indeed, YouGov research last year showed that 39% of businesses and more than one in ten (12%) individual savers cited the hassle associated with opening new accounts as a reason for not switching their money.
As with so much today however, technology holds the key to better, more efficient outcomes. Flagstone’s online cash deposit platform requires just a single application to access hundreds of deposit rates from more than 40 banks and building societies, including;
- Instant Access Accounts paying up to 1.42% AER/Gross1
- 95 Day Notice Accounts paying up to 1.80% AER/Gross1
- 18 Month Fixed Term Deposit Accounts paying up to 1.85% AER/Gross1
Accounts can be opened at the click of a mouse (rather than taking weeks or even months) and with hundreds of instant access, notice and term deposit accounts available, providing access to market-leading and exclusive rates 24/7, clients can be assured that their cash is working as hard as possible for them throughout 2020 and beyond.
1 Correct as at 23rd January 2020.
UK FINANCIAL REGULATOR PROPOSES REFORMS TO RATE SETTING FOR EASY ACCESS SAVINGS ACCOUNTS
The UK’s financial markets regulator has proposed significant reforms to the way in which banks and building societies set their deposit interest rates for easy access saving accounts.
The Financial Conduct Authority’s (FCA) proposals focus on providing better outcomes for long-standing easy access savings account customers who are typically being paid lower rates than new customers as a result of what the regulator deems to be an unfair ‘loyalty penalty’.
Loyal savers losing £1.1 billion a year
More than 40 million people in the UK have easy access savings accounts, but only 10% of them pro-actively move their deposits to different accounts on a regular basis to take advantage of the best prevailing rates available in the market. Approximately 20% move their money occasionally and 70% leave it in the same account, often for years, meaning that their deposits are exposed to a gradual reduction of the rate by the provider.
Citizens Advice have highlighted that loyal customers are losing out on £1.1 billion a year in foregone potential interest income as a result of their inertia.
What is a SEAR? Does it remedy the 'loyalty penalty'?
Under the FCA’s proposed new rules, all banks and building societies will have to set a Single Easy Access Rate (SEAR) across all easy access accounts. Providers will continue to have flexibility to offer multiple introductory rates for up to 12 months but will then have to set a SEAR for their easy access cash savings accounts.
The FCA’s proposals aim to improve competition in the market, encouraging providers to increase the interest rates they offer and protecting consumers currently receiving the lowest interest rates. The FCA estimates that consumers will benefit by £260m from higher interest payments.
Christopher Woolard, Executive Director of Strategy & Competition at the FCA said, “Competition is not working well for many of the 40 million consumers with easy access savings accounts and we want that to change. Our proposals would mean firms have a single rate for customers immediately after their accounts have been open for 12 months. Firms will choose the rates they offer, and the rates they offer will have to be clearly published.”
“This will prevent firms from gradually reducing interest rates over time and make them compete for all their customers. We are concerned that many longstanding customers are seeing a poor outcome and we want firms to focus more on these customers. The new rate will also make it easier for savers to know whether they are getting a good deal after any introductory offer has expired.”
As an example of the practice that the FCA is hoping to remedy, one provider is currently paying a range of different interest rates to customers across 82 different easy access accounts. Moreover, the gap between the worst paying easy access saving accounts in the market and the current market-leading rate for this type of account is more than 1.30%.
Will SEAR solve the problem?
The FCA’s proposals, first suggested in July 2018, will take effect by early next year if approved (following a consultation period which runs to the 9th of April) and whilst the new rules have the potential to provide greater clarity and to drive competition, it is possible also that providers will set the SEAR at a low rate, assuming that customer inertia will persist.
The onus will remain therefore on consumers to actively seek out the best rate of interest for their savings and move their deposits to that account.
A simple solution
Flagstone’s online cash deposit platform provides a simple, efficient solution to this challenge.
To open a Flagstone platform account, clients complete just one application form and then have access to more than a dozen different instant access savings accounts paying rates of up to 1.42% AER/Gross.
Having opened their Flagstone platform account, clients can open individual deposit accounts at the click of a mouse. Irrespective of how many instant access, notice or fixed term deposit accounts are subsequently opened, no further paper is required, eliminating the hassle of not only identifying the best deposit rates but also the process of opening and managing multiple accounts.
1 Correct as at 23rd January 2020
ARE INSTANT ACCESS SAVINGS RATES ABOUT TO COME UNDER PRESSURE?
Over the past seven years the volume of deposits held in instant access accounts has more than doubled to nearly £1 trillion1.
Bank of England data shows that the volume of deposits held in instant access savings accounts by individual and joint savers in the UK has increased by 62% since December 2012 to £763 billion1.
1 Bank of England Data - Databases LPQZ3TT and LPQZ3TZ
A similar trend has been seen in the UK business deposit market, with instant access accounts increasing significantly by volume and by market share versus notice and term deposit accounts over the last 7 years1.
1 Bank of England Data - Databases LPQZ3TX and LPQZ3U5
Instant access account rates coming under pressure?
The dual headwinds of a weakened economic and political uncertainty have seen savers and finance directors continue to move their cash increasingly to instant access deposit accounts as they’ve sought to strike an optimal balance between accessibility and rate of return.
Bank of England data shows that instant access savings rates have provided that pragmatic safe haven, remaining resilient in recent times in the face of these persistent market challenges.
1 Bank of England Data - Database IUMB6VK Monthly sterling interest rate for instant access deposits from UK households (Excluding unconditional bonuses)
However, a dip in last month’s market average rate to 0.41% (from 0.45% in April), and recent moves by some banks to reduce their best rates could be a worrying indicator for savers that the returns available from instant access accounts could now be coming under pressure and the breadth of choice beginning to narrow.
Is there a solution?
As individual institutions weigh the prevailing post-election landscape and make decisions on their headline rates, the Flagstone cash deposit platform remains a powerful antidote to any such anxiety.
As Flagstone announces the addition of its 42nd banking partner on the platform, clients now have access to a growing portfolio of more than 850 deposit accounts. For individual and joint clients these include an exclusive and best-in-market instant access rate of 1.42%2, more than three times the market average rate, and for business and charity finance directors a market-leading instant access rate of 1.40%2.
The breadth of providers and accounts available to clients using the Flagstone platform means that they can, on an ongoing basis, easily identify the best deposit rates and move their cash to these accounts without the requirement for any further paperwork - ensuring that their cash is always working as hard as possible for them and putting them in control.
1 £995 billion as at September 2019 – Bank of England Databases ‘LPQZ3TT’ and ‘LPQZ3TX’
2 Correct as at 23rd January 2020.
FLAGSTONE SHORTLISTED FOR TWO FSTECH AWARDS
The annual FStech awards celebrate product innovation making a positive impact on the financial services sector in the UK and EMEA. Flagstone has been shortlisted as the 'Most Innovative Product of the Year' and the ‘Consumer Finance Product of the Year' in 2019.
Flagstone's nomination recognises the work that the company is doing to deliver a step change in consumer outcomes and customer experience in the savings and deposit market.
FLAGSTONE WELCOMES 42ND BANK ONTO PLATFORM
Three new partner banks provide even greater choice to clients
We are delighted to announce that HSBC (Jersey), The Charity Bank and the State Bank of India have joined the Flagstone cash platform, increasing the choice of rates available to our personal, corporate and charity clients who can compare and open accounts at the click of a button.
Clients can now access market-leading and exclusive interest rates from a panel of 42 banks and building societies. Instant access, notice and fixed term deposit accounts in sterling, US Dollars and Euros can be opened and funded in just a matter of clicks.
Thanks to the number of UK banks and building societies available to Flagstone clients, it is possible to achieve exceptional diversification; with individual clients able to benefit from full FSCS (Financial Services Compensation Scheme) protection on up to £2.12 million (earning a blended interest rate of 1.12% net of fees), and joint account holders able to hold up to £3.84 million fully FSCS protected (earning a blended interest rate of 1.17% net of fees) in accounts on the platform.
The opportunity to earn more interest income, coupled with reduced risk, is a strong incentive for customers to move their savings from low-interest accounts with their existing providers to the Flagstone platform where they can take control of their money.
Flagstone customers value the flexibility and transparency of the platform which allows them to easily identify the accounts that best meet their requirements.
Rates currently available on the platform include:
- 1.42% AER/Gross instant access account for individual clients1
- 1.80% AER/Gross 95 day notice account for individuals, businesses & charities1
- 1.85% AER/Gross for 18 month fixed term deposit account for individuals & businesses1
1 Correct as at 23rd January 2020