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Savers withdraw £5bn from current accounts in bid for better interest rates
Earth Echo news portal2024-05-19 16:07:58【opinions】6People have gathered around
IntroductionThrifty customers are taking revenge on banks for years of zero interest when their current accounts
Thrifty customers are taking revenge on banks for years of zero interest when their current accounts are in credit.
They are piling billions into accounts paying a higher return, new analysis shows, giving banks a headache.
Credit agency Moody's revealed that lenders' profits are being squeezed by the trend.
It points to Bank of England figures showing that over the past year £5 billion has been pulled from non-interest paying current accounts, while £50 billion has gone into deposit accounts that do pay interest.
Savvy: Customers are piling billions out of current accounts and into accounts paying a higher return, new analysis shows - and it is starting to have an impact on banks' bottom lines
Current accounts have traditionally been a cheap source of funding for banks and building societies. That is because lenders' key source of profits is the gap – or margin – between the interest rates they charge to borrowers and the rates they have to pay out to savers.
In recent years banks have been criticised by MPs for being 'ungenerous' with the rates on offer to depositors.
The accusation was banks were quick to raise the interest charged to borrowers when the Bank of England started hiking rates, but much slower to pass on benefits to savers.
> Find the top interest-paying accounts using our best-buy savings rate tables
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Now it appears that the tables have turned. Bank of England figures published last week show that in March alone households deposited £8.5 billion with banks and building societies. That was the highest net inflow since October 2022.
Of this, £1.6 billion went into instant access savings accounts and £2 billion into 'term deposits' – which typically pay higher interest if they are left untouched for a fixed period.
A further £3.2 billion went into Isas – a trend that often happens in March as it is the end of the tax year.
But a net £640 million was withdrawn from non-interest paying current accounts.
The Moody's report said: 'UK banks have traditionally been funded by personal current accounts, which pay no interest and are a cheap source of funding for them.
'A shift to longer interest-bearing term deposits from interest-free deposits indicates banks' margins will be pressured.'
Moody's said UK banks had enjoyed 'exceptionally strong' profits in 2023 due to high Bank of England rates but it now expected margins 'to come under pressure from competition in the mortgage market'.
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