BoE threatens to ruin the day of even more savers

Business banking news review: week ending 28 Feb 2013

The Bank of England has gotten a reputation for throwing savers to the wolves, and now I’m afraid I have to break the bad news: things could get even worse.

The Bank, in its infinite wisdom, has kept the base interest rate at an unprecedented 0.5 per cent for quite literally years in an attempt to drive down retail rates for business loans and mortgages. The result of this has spelled bad times for anyone hoping to make their money grow in a savings account, as banks have also stripped back interest rates on savings products as well, and flummoxed savers  have been up in arms over this inequality for quite a long time.

Of course, the Bank – specifically its Monetary Policy Committee, the entity within the BoE that actually makes base rate decisions – could soon be dropping the base rate even further – into the negatives! In fact, Paul Tucker, the Banks deputy governor for financial stability, divulged that such a decision had already been bandied about at this months MPC meeting.

Now, you don’t need me to tell you that this would positively cripple what’s left of the savings market in the UK. It seems positively mad to me, though the method behind the madness is that lowering the base rate below sea level would encourage banks and building societies to just give cash out on the corner to anyone who comes by asking for it, as any depositor using the central bank – like a high street lender – would actually be charged for the privilege, and that if there’s anything banks hate more than helping out people who need mortgages and business loans is losing money.

In other words, setting the interest rate to -1 per cent would mean that a bank would need to pay 1 per cent in interest on any funds they keep with the Bank of England on an annual basis. Of course, if this was implemented, banks will undoubtedly slash the rates of return on their savings products even further.

I can only hope that the Bank doesn’t do this. As much as I relish the idea of a major bank getting charged for having an account with the BoE, the schadenfreude wouldn’t hold up very well considering the nation’s savers would suffer; I suppose I’ll just have to be satisfied with another news story this week that revealed that HSBC is scrapping sales-based bonuses for its staff.

No more extra cash for mis-selling financial products Brits don’t need is nice, considering there’s plenty of people still reeling from PPI mis-selling over the past few years. Couldn’t have happened to a nicer bank, if you ask me.

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