Tesco rate reduction later than planned?

6022tivo

I'm thinking of using my savings and this Tesco money x 2 to setup an unofficial local credit union.

Similar to a loan shark, but in a nice way. I'll check the people applying for credit and loan accordingly.
Should be worth around 25% apr which is better than the loans they are getting at the moment.

eskbanker

fred246 wrote: »

I don't understand how banks work. Surely they will have to get millions of pounds (?billions) ready for June. If they want to get rid of customers surely a few months at 2% would make their life easier. I suppose it's all the postage etc. I assumed it would drop to a figure between 1.5% and 3% for a while. At least there are no hard decisions to make.

If a bank has any problem in repaying customer deposits pretty much on demand then they won't be compliant with their regulatory liquidity requirements and so would be in a tricky place both operationally and with the FCA.

They won't be doing this specifically to 'get rid of customers' but they'll have modelled the effects of some customer attrition, which won't be anything like as bad as you might think from inside the MSE bubble, where many use such accounts as savings.

Worth bearing in mind that accounts paying generous interest above typical market rates will usually be loss leaders, so their model will be dependent on cross-selling other products, i.e. the savvy types using the accounts solely to earn decent interest and who'll go elsewhere once finished will be the ones they'd be happiest to see leaving.

No idea why you'd assume that it would drop to a higher figure than 1% either temporarily or permanently?

badger09

6022tivo wrote: »

I'm thinking of using my savings and this Tesco money x 2 to setup an unofficial local credit union.

Similar to a loan shark, but in a nice way. I'll check the people applying for credit and loan accordingly.
Should be worth around 25% apr which is better than the loans they are getting at the moment.

I might be missing the appropriate emoticon, but assume you're joking. Unless of course you are FCA/PRA authorised to do this:).

Sea_Shell

One can only assume that they know exactly how many £££s are going to be withdrawn in June, as surely they will have run various reports detailing which accounts sit with £3000 in all the time, with monthly interest being skimmed off. Especially the legacy accounts with no "hoops".

eskbanker

Sea_Shell wrote: »

One can only assume that they know exactly how many £££s are going to be withdrawn in June, as surely they will have run various reports detailing which accounts sit with £3000 in all the time, with monthly interest being skimmed off. Especially the legacy accounts with no "hoops".

They won't know (or need to know) exactly how many £££s are going to be withdrawn in June but will doubtless have been able to model projected behaviour based on some assumptions.

Assuming that every single account with an average balance of £3K will be emptied on 14 June wouldn't be a particularly sensible view, but if they assumed that, say, 60% of such accounts would be emptied between May and August, plus another 15% of accounts averaging above £1.5K closing by the year end, over and above routine attrition from switchers, emigrators, deaths, etc, then that sort of approach would probably be closer to the mark.

Bear in mind that it's a fairly well-trodden path, following in the footsteps of other banks who've reduced current account interest rates or rewards, including Santander, Lloyds, BoS, Halifax, TSB, Clydesdale, Co-Op, etc, and that, as a result of such previous reductions, there are few remaining options for those seeking decent interest from a current account (and none paying 3% or more on £3K in a single account).

masonic

Much of the money is likely to stay with Tesco. They have a savings account and ISA which are almost market leading. Relatively few will be motivated enough to seek out a completely new place to put their funds.

eskbanker

masonic wrote: »

Much of the money is likely to stay with Tesco. They have a savings account and ISA which are almost market leading. Relatively few will be motivated enough to seek out a completely new place to put their funds.

Not claiming that my speculation is any more informed than yours, but ultimately....