Nationwide Reducing Rate

Yorkshire_Pud wrote: »

Can I ask where you got this information, did you just receive a letter stating this?

I don't know where the information is from but you can be certain that Nationwide won't have any ISA with better rates than the FlexClusive ISA. As that one drops to 1.2%, it would make sense that the Instant ISA Saver goes to 1%.

karlos_the_jackal wrote: »

The problem is not being caused by the low base rate, we have had them since 2009 and 3% ISAs were plentiful 3 years ago.

As I mentioned above, base rates are one of the key drivers of market rates but banks' consumer savings and lending rates do not always track them directly because there are other market forces at work and they want to be careful about losing customers so they are not going to offer rates massively lower than their rivals just because base fell overnight.

Base rate dropped like a stone to 0.5%, where it has been since March 2009. Inter-bank lending (libor) took the rest of that year to fall down to a similar level and then started to drift up again until funding for lending knocked it down back towards the base rate again in 2012. Market interest rates for consumers have been gradually drifting down ever since the base rates fell in 2009.



You can use archive.org's Wayback Machine to see archived versions of MSE's top savings rates page back in time. Generally you will see the rates gradually falling since 2009. They did not all dive down to 1% in 2009 and stay there, but that doesn't mean it isn't to do with the base rate. The base rate (plus QE and other market distortions like FLS) are what drives rates, but financial institutions aim to be smart about how to pass that on to consumers via their business models.

This is the fault of the Funding for Lending scheme. Banks can borrow money from the BoE for nothing so they do not need our money. In a way we're lucky to get any interest at all.

If - as you contend - it is a nonsense to suggest that Nationwide's rate drops are in any way related to continuing low base rates because the base rate hasn't moved for a while... then it is equally nonsense to blame it on the F.L.S.

FLS came in during July 2012. In April 2013 they announced an extension which after further extensions will last to 2018, though any borrowing allowances under the extension are tapering down every six months from now through to then.

However, the extensions skew the benefits of FLS towards lenders who increase their lending to small and medium sized enterprises. Nationwide as a building society is household-focussed and has not been active in that area. In fact it had a net reduction of lending to SMEs by £3.6billion from the start of the qualifying period April 2013 through to the end of 2015. As such, its additional borrowing allowances were £nil, so it has no net drawings under the FLS extensions. And even if it did have an allowance under the scheme extension it would be tapering down from now rather than increasing from now, because FLS funding is being taken away rather than added.

So, to suggest that the savings rates at Nationwide are declining now because they are getting as much new money as they like off FLS, is a nonsense, because a) Nationwide didn't qualify for any new FLS funding under the scheme extension, and b) even if they did, the amounts covered by preferential rates would decline rather than increase.

According to the published BoE figures which you can get from http://www.bankofengland.co.uk/markets/Pages/FLS/default.aspx , Nationwide had £152 billion of qualifying loans to households and private non-financial companies when FLS came in at June 2012. Since then, they've done cumulative net lending of £11.5bn under the scheme definitions, and have £8.5bn of FLS drawings outstanding. But £0 of this is from the FLS extension of the last 3 years because they didn't qualify, due to a lack of new SME net lending.

So, while it's too late to say "to make a long story short...", basically if you're going to say the nationwide rate reductions aren't due to base rates because base rates last moved ages ago (which is a flawed premise), it would be a logical fallacy to make the counter-suggestion that it is because they can get as much money as they like from the FLS - because the FLS has been around for years and Nationwide didn't qualify for new net drawings under the extensions.