National Savings and Investments set to shake up savings market
The National Savings and Investment body has launched a one-year 3.95% fixed-rate savings bond which has caught the attention of consumers and savers in the UK. This is significantly higher than the vast majority of savings accounts and savings bonds offered in the wider market and will no doubt put significant pressure upon other companies in the UK to follow suit. However, there may well be other considerations when looking at the overall picture.
It is well-known that with the money markets not yet back to "traditional liquidity levels" many banks are depending upon customer savings deposits to make up part of any funding shortfall. However, with the National Savings and Investment body introducing an ultracompetitive savings bond there is every chance that business will be lost to this particular product and UK banks will need to review their savings rates.
The problem is that any increase in savings rates will have to be offset by an increase in other product rates such as mortgages, loans and overdrafts. In simple terms, if money becomes more expensive for UK banks then money will become more expensive for UK borrowers. The market will at some stage return to "normality" but at this moment in time that does seem some way off.
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