Beware of those who rob banks and run away with billions

When investment managers tell you that bank stocks represent a steal, and that there are good times ahead for the banking industry as a whole, you know they know something we don’t think much of. That is, with the economy teetering on the brink of recession, inflation running high like a bull on the loose and energy bills rising, the banks are lining their pockets at our expense. Profit uber alles. They smile…all the way to the bank. Even the government is on the side of the banks. Last week, it announced a series of measures – the Edinburgh reforms – designed to free banks from some rules after the 2008 financial crisis to protect their customers. CRIMINAL: Banks are lining their pockets at our expense – they smile… down to the bank, it’s all part of a bigger plan to turn the UK’s financial services sector into a world leader, which has led to economic growth. Inspiring? Maybe. Fullhardy? Only the future will tell, but because the banks are greedy, another financial crisis in 2008 will not be ruled out at some point in the future. While rising interest rates are generally bad for savers and borrowers, they represent wonderful news for banks. And bankers are rubbing their hands in glee as the Bank of England prepares to raise the base rate from 3 per cent to 3.5 per cent – ​​perhaps even 3.75 per cent – ​​on Thursday. In the year I would say more than at any time since the financial crisis of 2008 when the Labor government forced the bailout of both Lloyds and Royal Bank of Scotland at taxpayers’ expense after the industry collapsed. High interest rates are like gold dust to banks because they make billions of pounds in profits every year from the difference borrowers pay in interest on loans or credit cards and the interest they pay. In the year When the base rate fell to 0.5 percent in the wake of the 2008 financial crisis, to 0.25 percent after the EU referendum and then to 0.1 percent when the UK went into lockdown, banks had access to cash. The interest rate gap between the rate paid to borrowers and the rate paid to savers has narrowed sharply, but the proverbial worm has been on the rise since the Bank of England began raising its base rate last year – eight times nine in less than a year, if it marks another hike on Thursday. With the base rate rising from 0.1 to 3 percent, banks are more likely to widen the difference (net interest margin) between what savers and borrowers pay. Simply put, the higher the net margin, the fatter the banks’ profits. ‘Bank customers are being milked,’ says leading financial expert and consumer champion Baroness Altman. She believes seniors are particularly hard hit by this rate hike because they are primarily savers (not mortgage borrowers) — and have money in accounts where interest rates are being squeezed. Altmann also noted that older customers are being alienated by local branch closures, making private banking even more difficult. Since the beginning of the year, the banks have announced the closure of 619 branches – and more are planned for next year. Earlier this month, HSBC said it would eliminate a quarter of its branch network next year to respond to more customers using its services online. Altman added: ‘Bank customers, especially those who can’t afford – or can’t operate – smartphones are being left out of the equation. In my view, based on some of the changes the banks are making, there could be a strong case to make a claim of age discrimination. An analysis by the data watchdog Moneyfacts via the Mail on Sunday revealed how the big banks used interest rates to their advantage last year. Rachel Springel, finance expert at Moneyfacts, took the standard variable mortgage rate (SVR) charged by the big banks – Barclays, HSBC, Lloyds, NatWest and Santander – and National (the country’s largest building society) at the start of the year. This was before it was increased from 0.1 percent to 0.25 percent on December 16. Then she compares it to the current price. She took the same dates and compared the £10,000 the banks were paying savers in an easily accessible account. The results – see chart above – show that while rates on SVR loans rose between 2.65 and 2.9 percentage points, the corresponding increase in savings rates was small. Rates rose between 0.39 and 2.92 percentage points. During the same period, the base rate increased by 2.9 percent. In other words, while borrowers with SVR-linked loans bore the entirety of the base rate increase, some savers who needed easy access to their money got less than a fifth of the increase. Some of the big banks have gone through every base rate increase [variable rate] Mortgage customers, but not for loyal savers. There are providers – such as challenger banks – who are raising savings rates to levels higher than those of high street banks. But these are usually online accounts and not available to risk-averse senior savers who don’t want to go online. They prefer to stay with the bank where they grew up. Anna Bowes, co-founder of Savings Champion, says it’s ‘bonus time’ as banks pay high interest rates to their savers while keeping a minimum of rewards for their savers. She added: “There’s a bit of a festive spirit amongst the banks. It’s time for savers to vote with their feet and move their savings to providers with competitive interest rates.’ Bowes said someone with £50,000 in a Santander Daily Savings account paying 0.4 per cent would currently earn £200 in annual interest. If you choose the best unlimited access rate available at 2.81 per cent (Al Rayan Bank), you could earn an extra £1,205 a year in interest. A better deal: Peter and Jennifer Wolpeter and Jennifer Wall, longtime customers of Lloyd’s Bank, have been quietly switching their savings from the bank to get a higher rate. Peter, 75, who is retired from a firm of solicitors in Birmingham, and Jennifer, 73, have money in an online savings account with Lloyds that pays 0.5 per cent. But as interest rates rise, rival savings institutions find they’re paying too much — even if the account is a branch. ‘Our local Lloyd’s branch is in Harborne,’ said Peter. I use it often, but the opposite is the building society West Brom. He is paying 2.4 percent interest on a certain savings account. ‘If West Brom can offer such compelling value in a branch with all the costs associated with running a high street network, why can’t Lloyds?’ The best branch-based account club from Lloyds is a monthly saver (5.25 per cent, fixed for one year) although it limits monthly contributions to £400 over 12 months. Also, only existing Club Account customers are eligible. On Friday, the banks were asked to respond to allegations that customers were being ripped off by rising interest rates. HSBC said: “Our savings accounts are not directly linked to base rate. We have taken the opportunity to raise rates six times this year, including Standard Savings (1 to 5 per cent), Fixed Rate Savings (0.15 to 3.5 per cent) and Flexible Savings, from 0.01 to 0.65 per cent,’ Lloyds said. This year, the savings rate has quadrupled – and offered interest-free profits to 130,000 customers. Some links in this article may be affiliate links. If you click on them, we may get a small commission. This is money that helps us give money and use it freely. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial freedom.