It may come as a surprise to you, but the recent credit crunch has had some positive knock-on effects. One of the key drivers of the credit crunch was the fact that banks and building societies did not have the cash available to meet their daily working needs. A consequence of this is that savings accounts are now paying better rates of interest as banks and building societies are scrambling to persuade you to store your money with them as it is expensive for them to borrow from other banks. It is now possible to get savings accounts that pay out 6.4% interest. Shopping around and comparing savings rates is an important step in choosing where to put your money as the rates are being changed frequently. Price comparison websites can be accessed online and provide a quick and easy method of comparison.
The Financial Week that was...
Monday 1st October
The week started well with another beneficial knock-on effect of the credit crunch being created by Alistair Darling. He promised that all deposits in banks and building societies of up to £35,000 are now fully guaranteed by the Bank of England. The Financial Services Compensation Scheme, (which is the government’s policy that serves to protect your savings should a bank or building society go into administration) has expanded from a maximum payout of £31,700 to the current level at £35,000. Although it is very unlikely that a major bank will become insolvent, it’s great news that the government is providing additional cover to bank deposits.
Tuesday 2nd October
Base rates set to rise
Royal Bank of Scotland and NatWest bank customers have been issued a new security device that helps protect their online accounts. It is initially being targeted at people who frequently set up payments from their accounts such as direct debits. They are being sent small devices that look like calculators but are actually small debit card readers. Every time they are used they generate a unique code that must be typed into the bank’s website. From next year, anyone who sets up a new payment will be sent a reader automatically. The card reader is not needed to use online banking or to make payments that have already been set up, it is only required for setting up new payments.
Internet banking is a cheap, safe and fast way to do banking. It saves you having to go to your bank and means that you can transfer funds or access your account anywhere that the Internet is available. If you have questions on the use of internet banking the APACS website section on Internet Payments and Online Banking is a helpful resource.
Wednesday 3rd October
Personal loan rates have increased by up to 4% as effects of the recent economic uncertainty begins to be seen in the market. Since the start of last week at least nine lenders have raised rates on unsecured personal loans, according to Reuters’ news.
Northern Rock made the decision to scrap up to two-thirds of the 213 different mortgage deals that they offer. According to Moneyfacts, the bank made the decision in an attempt to cut costs.
Also on Wednesday, Nationwide’s monthly survey showed that consumer confidence – a proxy for how confident individuals feel about the health of the economy, their finances and job opportunities – rose five points on their index to 99. High levels of job security are fuelling the growth in consumer confidence. However, the data was gathered before the problems with Northern Rock emerged so levels of consumer confidence should be expected to drop in the next survey conducted.
Thursday 4th October
The Bank of England’s Monetary Policy Committee (MPC), the group that meets every month to make a decision on UK interest rates, decided to keep interest rates steady at 5.75% for a third month. While there had been calls from some sectors for interest rates to be cut, the decision to keep interest rates steady is one that had been widely expected. This “wait-and-see” policy has been adopted because there is still a great deal of uncertainty surrounding the long-term effects of the recent credit crunch.
This decision fell on the same day that Halifax announced that there has been slowdown in the housing market. Credit crunch worries and the five interest rises that have occurred over the last year helped to drive the slowdown. Prices fell by 0.6% in September. The cooling housing market is helping to stem inflationary pressure, which is also being caused by rising oil and food prices, and could lead to an MPC decision to cut interest rates by the end of the year.
In addition to the slowing housing market, the Halifax survey showed that there is a growing divergence in house prices between London and the rest of the country. Over the past three months, the greatest house price inflation occurred in greater London where prices grew 2.3%. On the other hand, in Northern Ireland, the consistent house price growth that we have seen over the past two years has been brought to an emphatic end; prices fell by 3.2% during the past three months.
Also on Thursday, police said that they have foiled plans by Nigerian organised crime groups to defraud Britons. In an operation jointly run by British and Nigerian police forces, more than 4,500 documents were seized. The criminals were going to use email as their key method of communication in the financial scams. According to the Office of Fair Trading, mass marketing fraud is calculated to be worth £3.5bn. It is extremely important to be weary of emails that indicate that you have won a competition. Only reply to emails for competitions that you remember entering and never pay fees, no matter how small, in order to receive the promise of a bigger prize. It is likely to turn out to be an empty promise. Check out the Identify Theft section on the Moneybasics website for more information on the myths of identity theft and what to do if you are a victim.
Prepared for Moneybasics by Jason Taylor