Savers and borrowers alike warned off from banking products

Business banking news review: week ending 23 May 2013

While savers have long known there’s little that High Street banking providers can offer them, now it seems that borrowers are being told to look elsewhere too.

It’s nothing new under the sun as far as savers are concerned when they’re warned off from putting their hard-earned cash into a savings account right now, especially with inflation still high and interest rates so abysmally low. A new warning rang out across the UK as three major banks slashed their long-term savings rates on their ISAs or fixed rate bonds, making it a losing proposition to say goodbye to your money for an extended period of time.

Nationwide, Santander, and Halifax have all stripped back their long term rates to absolutely offensive levels; an excellent example of this is how Halifax’s five year fix will net you an absolutely terrible 2 per cent rate of return, and that’s before taxes – after basic tax you’re looking at a paltry 1.6 per cent after a five year term, and it’s almost certain that the inflation rate will not drop below that by 2018. To make matters worse, other major banking institutions offer even less on their three and five year rates: HSBC’s ‘deal’ nets you 1.88 per cent before taxes after half a decade, while three year fies at HSBC and Halifax will see you earning 1.49 per cent and 1.44 per cent respectively – a far cry from the best buy 2.36 per cent rate of return on one and two year fixes.

It’s absolutely deplorable but not truly unexpected from the UK banking scene, especially where savings activity is concerned. However, what is surprising is that the Government has begun to urge small business bank account holders to look elsewhere for business loans and to eschew high street lenders!

Business Secretary Vince Cable recently said that you’re better off looking for working capital from outside the banking sector, especially if you’re a small or medium sized firm looking to expand or grow in the current economy. Mr Cable reiterated how much faith the Government is placing in the nation’s SMEs as a way to pull the UK out of its economic slump, and drew attention to how the nation’s banks are more or less good for nothing when it comes to providing low-cost credit to SMEs in need.

Industry experts say that the best alternative methods for funding include oft-overlooked avenues such as private debt placements and the retail bond market. However, one of the newest and possibly most successful ways to gain working capital may be through crowd-funding through sites such as Kickstarter, where individuals can pledge small amounts of cash towards a firm’s funding goal in exchange for early access to goods and services at greatly reduced cost.

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