How do banks decide on their interest rate?

RobLondon1984

Do banks decide on their interest rate after the Bank of England set the interest rate?

What day and time is this?

Is it at the beginning of every month or a certain period?

Where can I found out when the Bank of England set the interest rate?

Do banks change their rate as soon as the Bank of England set the interest rate?

Does the interest rate always go up? Because it seems that savings and ISA interest rate always go up?

Thanks

isofa

Details about the base rate can be found at:

www.bankofengland.co.uk

It is usually reviewed (or publically updated) at the beginning of each month.

Banks can change their rates whenever, but obviously they are in the business of making a profit so can delay updates, offer poorer rates etc. But they also have competition, so those offering worse rates may loose business.

Good banks and up-to-date accounts should all benefit from rate rises, as long as the bank passes them onto you.

What normally happens is that banks increase their mortgage rate first, bringing in more profit, and are slower to update their savings rates.

Swan_2

SPAM, reported ... do not click on OtherBritney's's link

nilrem_2

RobLondon1984 wrote: »

Do banks decide on their interest rate after the Bank of England set the interest rate?

If the BOE rate goes up they work out how little they can get away with giving you in the form of a rate increase, before you move elsewhere!

If the BOE rate decreases they decrease the amount they pay you by the amount the BOE decreased it by!

Is it at the beginning of every month or a certain period?

Normally the first Thursday in the month.

Where can I found out when the Bank of England set the interest rate?

http://www.bankofengland.co.uk/

Do banks change their rate as soon as the Bank of England set the interest rate?

If the rate goes up a few increase rates quickly, most wait as long as they possibly can, If the rate goes down they often change the rate paid very quickly indeed!

Does the interest rate always go up? Because it seems that savings and ISA interest rate always go up?

ATM we are on an upward curve, but at other times it will go on a downward curve, have a look at the BOE site, there you will be able to see what the rates have been in the last 32 years. http://213.225.136.206/mfsd/iadb/Repo.asp?Travel=NIxIRx

MattB_4

RobLondon1984 wrote: »

Do banks decide on their interest rate after the Bank of England set the interest rate?

What day and time is this?

Is it at the beginning of every month or a certain period?

Where can I found out when the Bank of England set the interest rate?

Do banks change their rate as soon as the Bank of England set the interest rate?

Does the interest rate always go up? Because it seems that savings and ISA interest rate always go up?

Thanks

Where to start?! Most would, I imagine, have several scenarios prepared in advance of the monthly MPC meeting just in case. Assuming nothing crazy happens you then implement one of your scenarios. When you announce can be down to a number of things. Some companies just do it at a certain time, others play the media a bit depending on what else is happening and what they are looking to do. If only it was something you could cost-effectively turn around in a day! Still there is a case of making some money in the mean time (is this called fiscal drag?).

As for how you set your pricing well there are an enormous number of factors! Do don't have to pass on anything (you could reduce them if you wanted. I'm sure Halifax did once?!) or go crazy and give money away. All depends on whether you want want to do some of the following:

- Avoid negative PR
- Play the best buy tables
- Change your competitive position
- Attract/ditch customers
- Make some extra £ through some widening against the Base Rate.

Some accounts will also have guarantees you need to fulfill (although that doesn't always mean you'll get the full Base Rate increase).

MarkyMarkD

MattB wrote: »

Still there is a case of making some money in the mean time (is this called fiscal drag?).

No. Fiscal drag is the effect whereby more of individuals' earnings are taxed at higher rates each year because earnings go up by more than inflation, on average, whilst tax thresholds only increase by inflation.

I have heard this called "Cumberland Gap" but I can't substantiate that name anywhere online!

For most UK banks and building societies, there is a delay to the implementation of interest rate changes on both mortgages and savings. The two cancel out, so the banks don't delay to make extra money. They have to give notice to mortgage customers under DD rules and account conditions, so they also delay implementing the changes in savings rates to around the same date.

As for how you set your pricing well there are an enormous number of factors! Do don't have to pass on anything (you could reduce them if you wanted. I'm sure Halifax did once?!) or go crazy and give money away. All depends on whether you want want to do some of the following:

- Avoid negative PR
- Play the best buy tables
- Change your competitive position
- Attract/ditch customers
- Make some extra £ through some widening against the Base Rate.

Some accounts will also have guarantees you need to fulfill (although that doesn't always mean you'll get the full Base Rate increase).

I agree with all of what you say here.

ManAtHome

nilrem wrote: »

If the rate goes up a few increase rates quickly, most wait as long as they possibly can, If the rate goes down they often change the rate paid very quickly indeed!

LOL, yes - and sometimes they get bored when the rate hasn't changed for a few months and lower savings rates "due to market conditions"...

RobLondon1984

I looked at the BOE website, and notice that rates always increase by 0.25%, anyone know why this is?

Do banks always increases or decrease their savings rate by 0.25?

Thanks

nilrem_2

RobLondon1984 wrote: »

I looked at the BOE website, and notice that rates always increase by 0.25%, anyone know why this is?

Do banks always increases or decrease their savings rate by 0.25?

Thanks

No they don't, look at the table on The BOE site I gave you above and you will see instances in the past where it changed by as much as 1%

ManAtHome

But hasn't gone up by more than 1/4 since "independence day" (last 10 years). Mind you they've hardly had a difficult time until now with the China, Cheap Dosh, Internet, Polish Builder effects keeping prices down - not quite as good now we're in the wibble-wibble-dont-panic phase...

Andy_L

Oppps - please ignore me