Do the banks want my money?

rogermhunt

This is bugging me . . .

If banks want investment; and want to attract new customers; and presumably want customers to save all their hard earned money with them . . . . why are savings rates in freefall?
I just had a discussion with my bank manager and she said that Lloyds are about to slash rates yet again on their fixed bond and next week, their cash ISA.
I said that Lloyds make it very hard for 'loyal' customers to stay with them when their rates are so paltry and I've also told her that yet again, I'll go elsewhere to save my money.
She didn't really have an answer as to why Lloyds were not as competitive as some of its main 'rivals'.
I explained that the 'new' banks, such as Bank of India, Punjabi Bank, Bank of Baroda are doing 1 year fixed bonds at 2.7%, whereas Lloyds is just about to cut its rate from 2.25% to 1.9%.

I'm sorry, but although I understand why rates are falling against the backdrop of the economic situation, I can't get my head around how reducing rates (so quickly and by so much) is going to attract investment/savers . . .

please can someone explain why the banks appear to me to be cutting their own nose off to spite their face??

Lokolo

Who says they want your money?

They only want your money if they can lend it out. If they can't lend it out...

callum9999

rogermhunt wrote: »

This is bugging me . . .

If banks want investment; and want to attract new customers; and presumably want customers to save all their hard earned money with them . . . . why are savings rates in freefall?
I just had a discussion with my bank manager and she said that Lloyds are about to slash rates yet again on their fixed bond and next week, their cash ISA.
I said that Lloyds make it very hard for 'loyal' customers to stay with them when their rates are so paltry and I've also told her that yet again, I'll go elsewhere to save my money.
She didn't really have an answer as to why Lloyds were not as competitive as some of its main 'rivals'.
I explained that the 'new' banks, such as Bank of India, Punjabi Bank, Bank of Baroda are doing 1 year fixed bonds at 2.7%, whereas Lloyds is just about to cut its rate from 2.25% to 1.9%.

I'm sorry, but although I understand why rates are falling against the backdrop of the economic situation, I can't get my head around how reducing rates (so quickly and by so much) is going to attract investment/savers . . .

please can someone explain why the banks appear to me to be cutting their own nose off to spite their face??

Firstly, if you will move elsewhere then you aren't a loyal customer. In fact, I'd argue that it's pathetic to be a loyal customer to a bank - if you can get a better deal elsewhere then you should go elsewhere. The vast majority of people who claim to be loyal customers are actually just lazy customers! (Not you obviously, the kind of people who stay with the same bank for 40 years regardless when there are various other banks with much better deals).

As to the savings rates falling, of course they want your money - but they don't want to pay you for it. They will be adjusting their interest rates so that they get just enough money without having to pay more than strictly necessary to get it. The "new" banks have higher rates because they aren't established yet and are trying to get new customers - Lloyds already has loads.

Especially when they are able to borrow money from the government from as little as 0.25% interest - why would they pay you 3% for it?

Russe11

Lokolo wrote: »

Who says they want your money?

They only want your money if they can lend it out. If they can't lend it out...

a bank is not allowed to lend out customers deposits, they can leverage deposists and create loans however.

anyway why would they want deposits when there is so much cheap money being pumped into the financial system.

bowlhead99

Lokolo and Callum are exactly right - the money they owe to savers is one source of cash against which they'll be able to provide lending-based products. As they cut back on some of the lending on certain types of loan/credit card products, they don't need so much funding.

Also, the government's Funding for Lending project has really reduced the cost of borrowing for those banks taking part. If you're a bank that finds itself able to get its hands on government-backed finance at 2% less than you used to be able to, then you are not as desperate to get a deposit from a retail customer like you or me, and pay through the nose for it. The savings to banks under this scheme might be relatively better for some banks (the ones with lower credit ratings who previously had to pay more in the wholesale market) than others, but if one or two banks drop their retail savings rates, another will follow suit because they have less competitive reason to keep paying the high rates.

rogermhunt wrote: »

I said that Lloyds make it very hard for 'loyal' customers to stay with them when their rates are so paltry and I've also told her that yet again, I'll go elsewhere to save my money.

"yet again" makes it sound like you haven't been a loyal customer, to be honest;). But whether or not you move your money (or don't bring back your maturing money, same thing)the banks know without even speaking to their in-branch staff, that you and other Money Saving Experts probably will shop around and find alternatives at some point.

But many will stay because only a minority of 'loyal' customers who have had their salary or pension paid into a bank for a long time - whether they do everything via one screen online banking, or walk down to the same branch every week and see a friendly face at the cashier desk - will decide they would rather have a postal account or separate online login with Bank of Timbuktu for half a percent of a thousand pounds.

She didn't really have an answer as to why Lloyds were not as competitive as some of its main 'rivals'.
I explained that the 'new' banks, such as Bank of India, Punjabi Bank, Bank of Baroda are doing 1 year fixed bonds at 2.7%

You are calling these the main rivals - these three might be rivalling each other for your attention but in terms of branches, market presence, breadth of products offered or UK customer base, these are not the main rivals as you well know. They are competing in one of the spaces Lloyds operate in, but Lloyds would not try and be the leader in every space (or even in any of them, if it can still broadly maintain its profits without).

I'm sorry, but although I understand why rates are falling against the backdrop of the economic situation, I can't get my head around how reducing rates (so quickly and by so much) is going to attract investment/savers . . .

The banks looking to attract investment or grow market share significantly will generally offer you a better rate, you just have to look around for them as you have done.

If you look at Aldermore since they launched / rebranded in 2009/10, they were in the top few on the best buy tables for ISAs and savings for a long time - growing their customer base, by offering better than the big 4 and winning a bunch of awards. They'll still do you a 1 year fix at 2.25, either inside or outside an ISA wrapper and without 'bonus rate' gimmicks - they're probably not going to head to the 'worst buy' end of the charts with the bigger high street players. But probably, now they're on Funding for Lending, they don't need to pay 2.75 and compete with Punjabi Bank et al.

Other newer entrants like M&S have similar rates (2.3 for a year fix). But as you can see from the M&S site, the rate's much higher for an ISA, they'll do you 3% on that. This is because they can afford to offer new customers a few thousand at 3%, but would be mad to offer that amount on 100,000.

antrobus

rogermhunt wrote: »

Do the banks want my money? .

At the moment, no. They have been offered a heap big pile of money from the government at a very cheap rate, and that will do them nicely for the present, thank you very much.

Russe11 wrote: »

a bank is not allowed to lend out customers deposits, they can leverage deposists and create loans however.

anyway why would they want deposits when there is so much cheap money being pumped into the financial system.

Mmm.

OK then , I'm game. Precisely what is the mechanism that banks employ to "leverage deposists and create loans" given that they are "not allowed to lend out customers deposits"?

antrobus

bowlhead99 wrote: »

...Other newer entrants like M&S ....

M&S isn't really a 'newer entrant'; it's just HSBC wearing a different hat.

opinions4u

Russe11 wrote: »

a bank is not allowed to lend out customers deposits, they can leverage deposists and create loans however.

Humour me.

Explain your theory.

Explain how a bank's balance sheet with deposits on one side and loans on the other works.

Hominu

I would have thought a bank would work similar to how most things work in the service industry: They assume that everyone wanting to withdraw their funds at the same time will never happen, so they can quite easily spend a certain %age on lending. The more riskier it is, the less they can spend, right upto the riskiest investments in which they can only spend their profits on.

Of course that didn't happen a few years a few years ago when all the banks were asking for handouts and couldn't afford to pay everyone back their deposits, and then there was northern rock...

But after all that happened, didn't the government state that certain investments had to be ring fenced from certain deposits?

Thrugelmir

rogermhunt wrote: »

please can someone explain why the banks appear to me to be cutting their own nose off to spite their face??

Lloyds is looking to shrink in size. At this point in time they may not require a vast amounts of retail deposit money.

opinions4u

Yes. The banks do want your money.

But not at the price you want them to pay you for it.