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UK economy contracts in March as consumers face surging inflation

Michael Brown

Content Writer
Published: 12/05/2022

Consumers cut back on spending as cost of living begins to bite.

Britain’s economy contracted by 0.1% in March, according to data released by the Office for National Statistics (ONS) today.

“The March decline highlights the pressure the economy is now coming under from the cost of living squeeze and the danger of it falling into outright recession later this year,” said Rupert Thompson, Investment Strategist at Kingswood.

The services sector, which includes contributions from education, arts and entertainment, and food service among others, fell 0.2% last month and was the main contributor to this decline.

More particularly, retail and wholesale activity fell 2.3% in March, with new car sales struggling to grow due to global supply issues.

“Household expenditure was still positive in the first quarter, as consumers took advantage of new-found freedoms to go out and spend money in shops, restaurants and hotels. But that was really the calm before the storm, as higher energy prices and taxes kicked in from April,” said Laith Khalaf, head of investment analysis at AJ Bell.

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Four in ten savers already using savings to combat cost of living crisis

Nearly a fifth of these savers have used over £1,000 of their savings over the past 12 months.

Four in ten savers have been forced to use their savings account to help cope with the rising cost of living over the past 12 months.

This is according to Yorkshire Building Society and the Centre for Economics and Business Research’s Inflation Nation report, which was released today.

“Families across the UK are already having to budget carefully in order to make ends meet. Some have accrued savings over the course of the pandemic, which can help foot monthly bills. Others simply do not have the financial resilience to withstand rising costs,” said Stephen White, Interim Chief Executive of Yorkshire Building Society. 

The report also found that of these savers, 23% used between £200 and £499 of their funds, 17% used more than £1,000 and 12% had used between £500 and £999.

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HSBC announces £170 switch offer for selected current accounts

Offer can be used in addition to HSBC’s deal which provides six months’ cashback on its insurance products.

Customers looking to switch current accounts to HSBC’s Advance or Premier current account can make use of a £170 switching incentive with immediate effect.

The incentive is meant to help consumers challenged by the cost of living crisis, according to Tom Wolfenden, HSBC UK’s Head of Retail.

“While cutting back on everyday and occasional spending or cancelling any unwanted or unused subscriptions could help, taking note of the wide range of offers that could provide discounts, or even cash, could make your money go further or go a little way to reducing the impact of the increase in the cost of living,” he said.

The switching incentive will run alongside HSBC’s current deal which provides six months’ cashback on the bank’s ‘mix and match’ insurance offer, Select and Cover. The value of this cashback is worth an additional £117.

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BREAKING: Bank of England increases base rate to 1%

The Bank of England has today increased base rate by 0.25%, up from 0.75% to 1.00%. We have analysed the average rates offered across savings and mortgages and considers what this decision may mean for consumers moving forward.

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Klarna to report customer debts and payments to credit agencies

The UK’s biggest Buy Now Pay Later provider will share its customer debt and payments with Experian and TransUnion from 1 June.  

From 1 June, Buy Now Pay Later (BNPL) provider Klarna will start sharing its customers payments made on time, late payments, and unpaid purchases with credit reference agencies.

Experian and TransUnion will be the first credit reporting agencies to receive this information.

This means that if a consumer falls behind on any repayments, their credit score will worsen. Equally, if a consumer repays their debts on time their credit rating will improve.

“It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate they can use credit responsibly and build their credit profile,” said Alex Marsh, Head of Klarna UK.

“That will start to change on 1 June this year as the vast majority of the 16 million UK consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.” 

The move comes at a time when the BNPL market is facing pressure from lobbyists to be regulated. In February, Klarna, Clearpay, Openpay and Laybuy all changed terms in their contracts after pressure from the Financial Conduct Authority (FCA).

Currently, if a customer falls behind on their Klarna repayments, their credit score will remain unaffected. Instead, they will be referred to a debt collection agency.

This is common with other BNPL providers. Yet around 47% of people surveyed by Creditspring, a loan subscription provider, did not know that a BNPL user could be referred to a debt collector if they missed their payment. 

"Worst-case scenario is that borrowers can end up receiving a knock on the door from a debt collector, but currently the vast majority are completely unaware this is even a possibility," said Neil Kadagathur, Co-Founder and CEO of Creditspring. 

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Recent News

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first direct to hike regular saver rate to 3.5% - how does it compare?

22nd April 2022

Multiple Moneyfacts award-winning challenger bank, first direct, will increase its regular saver account rate to 3.5%. However, those interested in the offer should consider the competition. “The majority of regular savings accounts on the market are either exclusive to new or existing current account customers or have some kind of eligibility criteria, so savers will need to compare deals carefully before they apply,” said Rachel Springall, Finance Expert at Moneyfacts.

Multiple Moneyfacts award-winning challenger bank, first direct, will increase its regular saver account rate to 3.5%.

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Santander ups eISA rates to 0.80% for 123 world customers

28th March 2022

Non 123 World or Select customers will be offered 0.70%. With ISA season in full swing, Santander has increased the interest on its eISAs by 0.20%. This means 123 World or Select customers will access a rate of 0.80% while other customers will be offered 0.70%. “We’re pleased to have increased rates across a range of Santander accounts recently, and our improved e-ISA offers customers one of the highest Cash ISA rates from a high street bank, with an even higher return for our 123 current account customers as a reward for banking with us,” said Hetal Parmar, Head of Banking and Savings at Santander UK.

Non 123 World or Select customers will be offered 0.70%.

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Impossible task for savers as inflation rises once more

23rd March 2022

Inflation has continued to rise, making it an impossible task for cash savers to protect their cash from its eroding impact. Acquiring the best savings deal is crucial to soften its eroding impact and the latest analysis from Moneyfacts.co.uk reveals the top rate deals available to savers searching for a competitive return. • The Consumer Price Index (CPI) rose to 6.2% during February, from 5.5% in January. • The number of deals able to outpace inflation has not changed since last month. There is not one standard savings account that can outpace 6.2%*. • The predicted rate for inflation during Q1 2023 is 5.2%. • In March 2021, 326 deals (seven easy access accounts, 23 notice accounts, eight variable rate ISAs, 78 fixed rate ISAs and 210 fixed rate bonds) could beat 0.4% (February 2021 CPI) and in March 2020, 26 deals (all fixed rate bonds) could beat 1.7% (February 2020 CPI)*.

Inflation has continued to rise, making it an impossible task for cash savers to protect their cash from its eroding impact.

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BREAKING: Moneyfacts reacts to the BOE interest rate

17th March 2022

The Bank of England has today increased base rate by 0.25% up from 0.50% to 0.75%. Moneyfacts has analysed the average rates offered across savings and mortgages and considers what this decision may mean for consumers moving forward.

The Bank of England has today increased base rate by 0.25% up from 0.50% to 0.75%.

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Most Popular Banking News

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HSBC announces £170 switch offer for selected current accounts

9th May 2022

Customers looking to switch current accounts to HSBC’s Advance or Premier current account can make use of a £170 switching incentive with immediate effect. The incentive is meant to help consumers challenged by the cost of living crisis, according to Tom Wolfenden, HSBC UK’s Head of Retail.

Customers looking to switch current accounts to HSBC’s Advance or Premier current account can make use of a £170 switching incentive with immediate effect.

Read More
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Virgin Money customers can now use their debit card abroad for free

6th March 2020

From today, Virgin Money current account holders will be able to make transactions using their debit card while abroad without incurring any foreign currency fees

Virgin Money current account holders will be able to make transactions using their debit card while abroad without incurring any foreign currency fees

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first direct to hike regular saver rate to 3.5% - how does it compare?

22nd April 2022

Multiple Moneyfacts award-winning challenger bank, first direct, will increase its regular saver account rate to 3.5%. However, those interested in the offer should consider the competition. “The majority of regular savings accounts on the market are either exclusive to new or existing current account customers or have some kind of eligibility criteria, so savers will need to compare deals carefully before they apply,” said Rachel Springall, Finance Expert at Moneyfacts.

Multiple Moneyfacts award-winning challenger bank, first direct, will increase its regular saver account rate to 3.5%.

Read More
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UK economy contracts in March as consumers face surging inflation

12th May 2022

Britain’s GDP contracted by 0.1% in March, according to data released by the Office for National Statistics (ONS) today. “The March decline highlights the pressure the economy is now coming under from the cost of living squeeze and the danger of it falling into outright recession later this year,” said Rupert Thompson, Investment Strategist at Kingswood. The services sector, which includes contributions from education, arts and entertainment, and food service among others, fell 0.2% last month and was the main contributor to this decline.

Britain’s GDP contracted by 0.1% in March, according to data released by the Office for National Statistics (ONS) today.

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