Passing on Rate Cuts

[surety]

MPs have tabled a motion in parliament to force UK banks to pass on Bank of England interest rates to their customers. In the wake of the financial crisis the Bank of England base rate had risen as high as 5%, despite later drops in the interest rate, the cuts have not been widely passed on to customers. The MPs also urged the Bank of England to further cut the interest rate. The motion stresses that cutting rates would assist the economy and all banks and financial institutions are responsible for helping ordinary people to cope with the demands of high interest rates. Lord Mandelson, however, acknowledged that although the MPs could table a motion, the government could not force the high street banks to cut interest rates, although the government bail out of some High Street banks included a condition that the institutions should restore credit lines. Despite this, however, he did note that ministers were perfectly entitled to express their views and encourage High Street banks to do what was best for their customers and for the economy. Recent statistics suggested that only 60% of mortgage lenders passed on the rate cut to their customers and only about half of those passed on the full amount. One of the issues is that whilst the rate cut might ease pressure on banks, there is no doubt that they are still struggling with serious assets, and feel the need for greater liquidity in order to operate. For a while, it seems, that the interest cuts might not get passed along to the customers so that they may ac***ulate greater interest. A high interest rate on mortgages is a bad thing for the customers, but a high interest rate on bank accounts is only a good thing. At the moment many banks are offering good rate on savings and current accounts because attracting capital from customers is the safest way of amassing money. With the inter-bank credit rate being so high – this is the rate at which banks exchange money to each other – many banks are offering great savings account rates as it is cheaper to pay high interest to the customers than it is to borrow sums of money from other financial institutions. Of course, the government’s recent steps to help the economy have resulted in more liquidity in the market and lower inter-bank lending rates, but there are still some good accounts to be found. With higher deposits required on just about anything that requires credit – particularly mortgages and cars – it is more important than ever to make sure your money is saved away somewhere and working for you. It is definitely worth taking a look at Alliance and Leicester’s bank accounts at the moment (the linked 12% savings account could also come in very handy) as they are offering excellent value that may well make your money work harder for you than it is at the moment.

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