Flagstone Weekly Update - 18 December 2018
18th December 2018
- Notice accounts risen in December
- Sipps earning paltry interest on cash
- Jersey branch of Santander removed from UK parent
- Former BoE officials warn of bank’s limited ability to fight recession
- FTSE European 350 Bank Index rose slightly by +0.8% over the last week
- ITRAXX Europe Senior Financials 5-year CDS Index improves by -4.9% over the last week
The Average rate paid on notice accounts surpassed 1.00% in December, the highest level since 2012, according to the latest Moneyfacts UK Savings Trends Treasury Report. The average notice account stands at 1.04%, up from 0.97% in November. The rate has more than doubled since February last year, when it stood at 0.49%.Meanwhile, the average no notice rate (including instant access) has fallen to 0.63% across December, the first month-on-month fall since March, indicating the importance of being wise to changes and moving funds where better rates are available.Notice accounts now hold a 0.41% advantage over non-notice accounts, the largest advantage since records began in 2007.Darren Cook, Finance Expert at Moneyfacts, said "it is fantastic to see that the average interest rate on notice accounts has breached 1% for the first time in six years and is now showing signs of recovering for those savers looking to boost their hard-earned cash without locking their money away for the longer term.”There are 10 notice accounts on the Flagstone platform with an interest rate higher than 1.50%, with durations ranging from 35 day to 1 year.
Major Sipp providers are offering paltry interest rates on cash, despite its recent resurgence as an asset class and investors holding large sums in cash within their Sipps, according to Thisismoney.co.uk.They found that the largest firms are paying at most 0.35%, with many offering as little as 0.1%. Sipp providers tend to hold the view that their clients are looking for market access.Standard life said 'A Sipp is a long-term savings vehicle. Generally, we expect cash holdings to be used for temporary tactical investment objectives, or funding for near-term encashment, or planned spending for those in, near, or at retirement.'Hargreaves Lansdown states that around 10% of its investors money was held as cash over the summer, compared to a usual figure of 8%, and this has likely only increased since then.The report serves as further evidence that being aware of how and where you hold your money is critical in ensuring that you obtain the best interest rates possible.
Santander Jersey yesterday became a branch of Abbey National Treasury Services PLC, to comply with UK ringfencing legislation, which comes into force of the 1st of January 2019. The move will prevent Santander Jersey from being treated as a direct subsidy of the ringfenced bank, Santander UK PLC, but instead be treated as a direct subsidy of UK Group Holdings PLC. This is because a ringfenced bank is not allowed to have branches or subsidies outside of the European Economic Area under the new legislation.A report from the bank’s auditors KPMG stated that the likely effect of the transfer of customers and creditors of the Jersey branch from Santander UK plc to the Abbey National is the assets of the bank rising from £1.1 billion to £5.4 billion. Deposit liabilities of £5 billion will also be transferred, of which, around £4 billion will initially be held on deposit with the Bank of England.
Two former deputy governors of the Bank of England said on Friday that interest rates alone would not be able to fight the next economic downturn, arguing that taxes will need to be cut, or public spending increased.Speaking at the monetary policy forum on Friday, Charlie Bean and Rachel Lomax stated that Bank would be able to provide some help, but fiscal policy would also need to be brought to the table.“I do think we need to start thinking again about using fiscal policy more actively than we have in recent years,” Charlie Bean stated.
BANK FTSE AND CDS INDEXES
The FTSE European 350 Bank Index rose slightly over the week, up by +0.8% to 3,753 from 3,723, as financial markets consider the consequences of slowing eurozone economic growth and the likelihood that the UK Government’s Brexit withdrawal agreement with the European Union (EU) will eventually be defeated in the UK Parliament.
The ITRAXX Europe Senior Financials 5-year CDS Index spread (series 30) more than reversed the rise of the previous week, down by -4.9% to a less expensive 103.0bps from 108.3bps, as financial markets contemplate the potential adverse impact of the slowdown in eurozone economic growth, the Italian budget impasse and the likely UK parliamentary defeat of the UK Government’s Brexit withdrawal agreement with the European Union (EU) which could result in a further eurozone recession and cause financial difficulties for European businesses.