Savers losing out to bank rescue

The Royal Bank of Scotland just announced a staggering £28 billion loss.

While we’ve seen a number of banks declare billions in losses over the past year, and the process still continues, the RBS loss is going down as the biggest corporate loss in UK history.

It’s unbelievable what’s happened to the banks, and what’s even more unfair is that it’s the tax payer who is paying for all the mistakes of the banks.

We’re not just paying in terms of government funding and asset swaps with the Treasury, but also as customers. Interest rates on savings accounts are dead, but mortgage and loan interest rates remain a lot higher than the Bank of England’s base rate.

Which means the banks are doing what they can to widen profit margins to recapitalise themselves, meaning that we’re ending up paying twice to save them from their own greed.

I currently have a Nationwide bank account which is paying less than 1% interest. On the one hand, at least I know Nationwide is one of the stronger financial institutions and isn’t under any threat of being part-nationalised like RBS and Lloyds, and doesn’t look likely to be nationalised any time soon.

Even still, as I’m saving for a deposit on a house, I don’t like the fact that my savings are no longer working as hard as they used to.

Hopefully the banking crisis will soon be over, and perhaps for the sake of the financial system, banks need to widen profit margins in order to bring this to an end sooner, rather than later.

But just don’t expect me to enjoy being part of the bail-out, when all I can see is the cost from it all, rather than the benefits.

Bank of England punishes savers

This week’s move by the Bank of England to cut the interest rate to an all time low of 1% is a bad move for all of us, especially those trying to save money.

It is an unfortunate double whammy, because while the tax payer is subsidising the banking system via RBS and Lloyds especially though part nationalisation, plus through government guarantees and debt swaps with its special liquidity scheme, the cut in interest rates especially benefits the banks by increasing their profit margins.

A major way banks make their profit is through arbitrage between savings rates on loan rates. In other words, the bank offers a relatively low interest rate to savers, a relatively higher rate to borrowers, and the difference in between is profit.

The problem is that while savings rates have come down a lot, especially as the Bank of England cuts interest rates, the actual borrowing rates remain comparatively high.

For example, with mortgages, it used to be the case that tracker rates would follow the Bank of England’s rate up and down. If they still did this, then many people would be feeling the benefits.

However, lenders have now instituted a “mortgage tracker rate” which means the tracker rate they offer is a few full percentiles about the Bank of England’s interest rate, but does not necessarily comes down if the Bank of England’s interest rate is cut.

Many previous tracker mortgages also came with a mortgage floor which effectively means that the tracker mortgage will not come down below a certain rate, even if the Bank of England interest rate continues to fall.

Coupling the constant cutting of interest rates on savings, with the artificially high mortgage repayment rates, means that the UK’s banks are cashing in at the detriment to the very consumer’s whose taxes are keeping such banks afloat.

We as a nation are therefore hit by a double whammy of subsidising the UK banks directly through billions in government support, and additionally by the banks ensuring that interest rate cuts actually boost their own profit margins.

Not many people are aware of just how depressingly manipulated we are being used to help support the very institutions, whose greed and maladministration brought us into what appears to be a deep recession, and yet it will be the banks who end up profiting most from it.

Starting out on Blogger

Well, I’ve already been trying out blogging by myself at Richmond Way as part of trying to understand the online environment, not least with the current development of my A1 brand websites.

Even still, I have to admit it feels sometimes isolating and lonsesome to blog without any real understanding of what audience may or may not be around.

I’ve therefore decided to start up blogging at a few online blogging communities, where perhaps it may be easier to engage with an online audience, and that’s why I’ve set up this blog at Blogger.

I’m not sure what to expect as yet, and perhaps lack of expectation is good. Nevertheless, it will be an interesting experiment.