A growing gulf
2nd March 2018
A growing gulf
It’s been four months since the Bank of England increased the base rate by 0.25% to 0.50%, but since then the market for instant access accounts has only improved by 0.09%** highlighting that most banks have failed to pass this increase on.
As the gulf has grown since November between average high street rates and the rates available on the Flagstone platform, so has the cost of inertia for those who still have the cash element of their portfolio sat in an account generating little or no income. Indeed, one of the ‘Big 4’ high street banks continues to offer a ‘Premier Savings’ rate of just 0.10%, meaning that depositors could earn significantly more interest income by moving their cash to the Flagstone platform, and by doing so could also improve their diversification and FSCS protection.
Click on the infographic below to see how:
So, whilst the Deputy Governor of the Bank of England, Ben Broadbent, has said that a couple of 0.25% base rate increases in the coming year should not now come as a great shock, we can see that there's no guarantee of benefitting from those increases if depositors simply leave their money with their current provider, and could be well advised to take matters into their own hands by moving their deposits onto the Flagstone platform.
Two important deadlines
In the longer term, deposit interest rates across the market will rise because of two important deadlines – one having passed at the end of January, and the other just last week. The Government’s Funding for Lending Scheme (FLS), which has significantly impaired the savings market since 2012, closed on January 31st, and the more recently introduced (2016) Term Funding Scheme (TFS) closed at the end of February.
These two Government initiatives, established to boost the economy by providing banks and building societies with access to cheap (effectively ‘wholesale’) funding to stimulate lending, had the unintended consequence of driving down savings rates, given that high street lenders no longer required customer funds and therefore had little incentive to offer competitive interest rates to attract them.
As a line is drawn under both schemes, source of funding will once again return to the agenda for all the banks and building societies which participated, and as a result we can expect to see the interest rate environment improve. But given that the Treasury Bonds drawn as part of the FLS and TFS have a four year ‘shelf life’, the return to pre-scheme ‘norms’ (the August 2012 market average rate was 7.3x the current level*) will not happen overnight and is likely to be gradual.
You can be assured however that, as the market recovers, the accounts available from Flagstone will continue to be at the vanguard of the prevailing best-buy tables, providing market-leading returns.
And in light of recent market volatility and ongoing uncertainty, with thoughts potentially turning to de-risking and to cash, there is arguably no better way to ensure that the return on the asset whilst out of market is optimised, and that funds remain readily available, than with an instant access account on the Flagstone platform, providing a rate that's 7x higher than the market average.
If you have any questions then don't hesitate to contact us.
Stephen Kiggins - Marketing Director, Flagstone
* Bank of England data - Average instant access deposit rates (0.20% as at 28/02/18 and 1.53% as at 31/08/12).
** Moneyfacts UK Savings Trends Treasury Report - market average variable savings rate increase.