Banking News

Despite the current uncertain climate, next month universities are set to reopen and welcome a new influx of freshers. For many students due to start their degree next month, getting a student bank account will be one of the most important financial decisions they make in preparation for their university life.

At the start of the Coronavirus pandemic, the majority of banks put on hold their planned overdraft interest rate rises to help consumers struggling financially due to the pandemic, but now many banks are set to go ahead and increase their rates.

The banks that are due to increase their fees during July and August are Barclays, first direct, HSBC, NatWest, Royal Bank of Scotland (RBS) and Starling, with Santander also due to raise fees in the future.

The most recent results for the banking service standards from the Financial Conduct Authority (FCA) show that banks are making little progress to improve their service standards.

The latest results cover 1 January 2020 to 31 March 2020 and show that while there has been progress in some areas of customer service, banks are still failing to improve in others. Most notably, more banks can open a normal account within one day, with the average time taken to issue a new card being just under five days. However, some banks are still making customers wait for weeks to replace cards that have been lost.

On a positive note, the time taken to gain access to online banking has continued to improve across the sector. At the other end of the scale, six banks remain unable to provide an instant decision on overdraft requests taking just under four days on average.

These service performance results are issued quarterly by the FCA and shows how quickly banks and building societies carry out a series of common banking services. The FCA introduced these standards with the aim of helping customers choose a bank account in the full knowledge of the service experience they can expect the receive.

There’s more information on the independent service quality survey in our helpful guide: How satisfied are consumers with their banks?

Savers looking to lock their money into a short-term bond will be disappointed to learn that the average rate on a one year fixed rate bond has fallen below 1% for the first time in three years.

Data from the soon to be published Moneyfacts UK Savings Trends Treasury Report shows that the average rate on a one year fixed bond stands at 0.99%, its lowest since May 2017 when it was 0.98%. As well as this, the average one year fixed ISA rate has also fallen and now stands at 0.91%, the lowest it has been since June 2017 when it was also 0.91%.

This will have a significant impact on savers who locked their money into a short-term bond during 2018 or 2019, as they will find the savings rates currently on offer to be much lower. Rachel Springall, finance expert at Moneyfacts.co.uk, explained: “Those savers who are about to come to the end of their fixed bond may wish to prepare themselves for a shock, as they will find the top rates have dropped substantially over the years. Indeed, a year ago the top one year fixed bond paid 2.20% as an expected profit rate from Bank of London and The Middle East (BLME), but today the top deal pays 1.50% from Gatehouse Bank as an expected profit rate, 0.70% less. On an investment of £20,000, that is a total interest loss of £140. In May 2015 the top five year fixed bond paid 3.09% from United Bank UK (now UBL UK), so a saver coming off this deal and is now looking to lock their money away for five years with the top deal from Gatehouse Bank, that pays 1.85% as an expected profit rate, will note a difference of 1.24%, a total loss of £1,240 on a £20,000 investment over five years.”

Falling average rates have also impacted easy access accounts, with the average easy access rate dropping to 0.40% at the start of May, from 0.51% in April. This was the biggest fall since December 2012, three months after the Funding for Lending Scheme was launched. In April, a new Funding for Lending Scheme was introduced, which together with the historic low base rate cut that took place in March, could see easy access savings rates fall further over the next few months.

Springall added: “If savers are looking for some flexibility with their cash then they may turn to an easy access account, however as these pay a variable rate the return could drop at any point. In fact, the market is already seeing a domino effect of rate cuts, with some of the top deals worsening in recent weeks. Providers are perhaps cutting rates to deter deposits due to demand or find they are much higher up the rate tables than they can cope with. Indeed, according to the Bank of England £11 billion flowed into sight deposits (such as easy access accounts) during March.”

Savings market analysis - average rates 

*Longer-term bonds or ISAs are those with terms over 550 days. Average interest rates based on a £5,000 deposit as at the start of the month. Source: Moneyfacts Treasury Reports