Highest Interest Account, regardless of notice?

oap

Hi, we get monthly income interest from our Chelsea account.
Just got a letter the other day which states:

From 1 Sept 5.15% gross, 4.12% net, monthly gross 5.03% net 4.02%

We do not pay tax so 5.15% is OK.
This is for the ClicknSave 30 account. Chelsea Building Society.

Been with Chelsea for years, but usually change around if they offer a better deal. Also you actually speak to a real person when you telephone!!!

Regards oap

Kamran

I've been with Chelsea too, and have had good experiences with them.. I think I'll switch to their Call tracker 20, purely because I do like to operate over the phone and not by post!!!

thanks
Kam

Chrismaths

Just a follow on - I'm not suggesting that any of the mainstream Building Societies are likely to go bust, indeed I believe that should any BS get into trouble, they would likely be bought out by another BS or bank - and Nottingham BS have assets of over £1bn. However, Ruffler are a whole different ball game - they only had revenues of £9m in 2005 (according to here) - and they are paying huge rates. Why would they do that? From their website, it appears they are into commercial loans - so they are paying Bank base rates + 1% over a year, and loaning it out at higher rates to companies. So let's say to make a decent margin they are lending out at BBR+3%, that means that any company that needs to pay that much on their borrowing will not necessarily be that financially sound (or they could get money cheaper elsewhere). Any large defaults on loans could have a large effect on the solvency of Ruffler. If you are happy to take the risk for a few extra basis points, good luck, but I personally wouldn't, when I could get decent rates elsewhere.

baldbloke_2

Chrismaths wrote:

Just a follow on - I'm not suggesting that any of the mainstream Building Societies are likely to go bust, indeed I believe that should any BS get into trouble, they would likely be bought out by another BS or bank - and Nottingham BS have assets of over £1bn. However, Ruffler are a whole different ball game - they only had revenues of £9m in 2005 (according to here) - and they are paying huge rates. Why would they do that? From their website, it appears they are into commercial loans - so they are paying Bank base rates + 1% over a year, and loaning it out at higher rates to companies. So let's say to make a decent margin they are lending out at BBR+3%, that means that any company that needs to pay that much on their borrowing will not necessarily be that financially sound (or they could get money cheaper elsewhere). Any large defaults on loans could have a large effect on the solvency of Ruffler. If you are happy to take the risk for a few extra basis points, good luck, but I personally wouldn't, when I could get decent rates elsewhere.

Their accounts for the year just ended are available on their site. Credit to them for having current audited accounts so quickly available.
I was interested to note that their cash ISA had income of £120,000 during the year - which equates to 40 people saving the minimum/maximum £3k each. It gives you an indication of the scale of their operation at present. But they have to start from somewhere.

The chairman's past experience of the amusement & coin-slot machine business is mentioned a few times as background and they remain a private bank.

The figures outlined above by Chrismaths should provide food for thought - and their name certainly does have a habit of popping up on here now and again!

codetown

Chrismaths wrote:

Just a follow on - I'm not suggesting that any of the mainstream Building Societies are likely to go bust, indeed I believe that should any BS get into trouble, they would likely be bought out by another BS or bank - and Nottingham BS have assets of over £1bn. However, Ruffler are a whole different ball game - they only had revenues of £9m in 2005 (according to here) - and they are paying huge rates. Why would they do that? From their website, it appears they are into commercial loans - so they are paying Bank base rates + 1% over a year, and loaning it out at higher rates to companies. So let's say to make a decent margin they are lending out at BBR+3%, that means that any company that needs to pay that much on their borrowing will not necessarily be that financially sound (or they could get money cheaper elsewhere). Any large defaults on loans could have a large effect on the solvency of Ruffler. If you are happy to take the risk for a few extra basis points, good luck, but I personally wouldn't, when I could get decent rates elsewhere.

In UK (as in many other countries) all respectable financial insitutions (including Ruffler bank) take part in what is called the Financial Services Compensation Scheme.

This scheme insures the savings for the benefit to those who save (end users like us). Within this scheme you are protected 100% of the first £2,000 and 90% of the next £33,000. So for the amount of money the guy is asking about, there is a very save protection parachute *whatever happens*.
The real disadvantage is to have the money tied away.

But even not considering this insurance, in a risk scale I would rate 1 nationwide, 2 Ruffler bank and 3 ICICI, just to mention few known names. And loads of people are investing with ICICI, even if it is a foreign companie, not easily traceable and not even good in keeping customer centres up to the task of supporting users.
Any real fund/trust investment would be at a risk factor of 5+.

So I would certainly say not to worry about saving with Ruffler.
They might be small, but this might be an advantage for the building/loan market in which they operate and they profit from.

Chrismaths

This scheme insures the savings for the benefit to those who save (end users like us). Within this scheme you are protected 100% of the first £2,000 and 90% of the next £33,000. So for the amount of money the guy is asking about, there is a very save protection parachute *whatever happens*.

I refer the honourable gentleman here:

Chrismaths wrote:

It may be covered by the FSCS, but it takes time to get money out of the FSCS and you are only guaranteed 100% of the first £2000, then 90% of the next £33,000

The scheme is unlikely to pay out on the day that Ruffler hypothetically get into difficulties. It is more likely that the company would go through a protracted bankruptcy period, the depositors would get back some pence in the pound, then the scheme would kick in, but this could be any period from a year to 3 years later - how much interest could you have earned in that period, and could you deal with not having access to the money in that period? The FSCS is a good safety net, but membership of that alone shouldn't be relied upon - it is a necessary but not sufficient condition for saving with a bank.

codetown

Chrismaths,
I think we are going in the reign of hypothesis which don't stand much chances at all to ever happen. of course what we talk about is an extremly remote possibility. I can't recollect in my mind any single case of a bank bankrupcy in the last 10 years!

Banks are not IFAs running away with your money or investing all your moeny in extremly risky areas. They balance a large portfolio and pass some of the benefits to savers. Clearly a smaller outfit with much lower operating costs (and expensive assets) such as this Ruffler might find easier to offer better rewards. And the safety net of the FSCS is better than nothing (like an insurance on your home, which is there just in case).

If you feel this is risky, what would you say about corporate bonds or even smaller cap shares? I think a bank has a much higher control of its finances than a company and they can alway get out of bad businesses and/or reduce exposure if they feel is not providing the right return.
My feel is that the size f Ruffler is already large enough to give some safety to savers. Of course it is not Nationwide, but we all know how nationwide is treating its members nowadays.

Chrismaths

codetown, if you are happy, I'm not going to tell you not to use them - I just think that people should be aware of the risks.

There are 3 main credit rating agencies - Fitch, S&P and Moody's. They rate each company's debt according to a scale (for simplification) of AAA (best) - AA, A, BBB (all of these are classified as investment grade) BB, B, CCC down to D (so called junk bonds) - This reflects the likelihood of a default on that debt. The big 4 (lloyds excepted) are rated only AA, most of the Building societies are rated A. UK government debt is rated AAA, as are some corporate bonds (such as EIB (european investment bank)) and the top level tranche of some CDOs (collaterallised debt obligations). These bonds are actually SAFER than having your money in the bank (which even in the best cases are rated AA). Ruffler bank doesn't have a rating, and would probably (due to its size and surity of cash flows) be rated in the sub investment grade (ie junk) status.

So you can get a corporate bond safer than cash, the same as cash, more risky than cash, and even more risky than equity (distressed bonds) - its a sliding scale. As to small cap shares - there's no point comparing, you just introduced them randomly.

People who manage cash for a living (called treasury managers, or money market managers) always look at the credit rating of a bank before choosing to invest - as no matter how small you think the risk of a bank going bust is (BCCI anyone?) It is still a risk, and the payoff is asymmetric (ie if you win, you win small, if you lose, you lose everything) - in fact most Local authorities refuse to invest more than £1.5m per bank! Now I personally think that if any of the known (by which I mean the mainstream) building societies or banks got into financial difficulties, then there would be a queue of other banks and BSs to take over that bank before it ever got close to default, the same is not necessarily true of such a small company as Ruffler - the loan book may not be that attractive (or so small as to not interest any of the banks).

If you choose to take on the risk of Ruffler going bust (we can argue till the cows come home about that one) for an added, say 50-70bps per year of reward, that is your choice. I wouldn't personally take the risk.

codetown

Your explanation is good and I agree that there is a sliding scale of risk, even though most corporate (not state-guarantee ones) bonds are in the higher risk part of the scale.

I am puzzled about where you get your opinion of the Ruffler bank. The fact it si a smaller outlet does not mean in itself that it is badly managed or is in bad shape to deserve the junk status. From their accounts reports it appears a solid and well mainained bank.

I am not investing with them, and not for the risk (which I consider negligible) but for the fact they tie up your money. I -as many others- prefer instant access to savings and the 0.5-0.8% more is not sufficient to make me tie the savings for 6+ months.

Chrismaths

I have nothing against ruffler - I personally prefer the surity of a large, well capitalised bank over the even vague possibility of a small one going titsup. I accept that the FSCS acts as a bit of insurance, but I'd prefer never to have to use it!

As to corporate bonds - we are only talking about the risk of default here, not the other risks assosciated with corporate bonds - such as duration. A 30 yr bond is effectively a fixed term deposit - but the capital is only guaranteed at maturity - if interest rates rise, then the value of the bond will go down. This applies less to shorter maturity bonds. The credit rating only applies to the probability of default, not the overall risk of the bond.