And so, the merry little dance that banks and building societies once did around interest rates begins again.
After a decade of downward reductions in the wake of the financial crisis, we now have our first proper rate increase.
Before you write in, I realise this is the second rise, but the first one was really only to undo the cut passed on in the wake of the EU referendum.
The move to up the rate from 0.5 per cent to 0.75 per cent really represents the Bank of England’s (BoE’s) efforts to combat fears over inflation sparked by concerns the economy may be full to capacity with unemployment at record levels.
The only direction now is up – particularly if further falls in the pound push up the cost of imports.
When it comes to base rate movements, banks can remember their footwork for this routine, but consumers may well have forgotten.
Quite simply, the banks do not want savers’ cash. Years of Funding for Lending and mountains of money earning almost zero per cent, have left them flush.It goes a bit like this: when rates fall, lenders’ standard variable rates (SVRs) sink by less than the drop in the base rate, while savings accounts are pushed down to the max. But then when rates rise, SVRs shoot up by an equal amount immediately, while savings accounts only go up by a nudge.
When I first started as a financial hack, I used to keep a spreadsheet of what the biggest names did every time the base rate was tweaked – it was a way of keeping them all to account. I pulled out that spreadsheet the other day and it was full of ghosts: Abbey, Cheltenham & Gloucester, Britannia, Bristol & West.
How banks respond to changes in the base rate has become as much of a distant memory as many of these names. Anyone not paying attention is likely to find themselves caught out.
Quite simply, the banks do not want savers’ cash. Years of Funding for Lending and mountains of money earning almost zero per cent, have left them flush.
HSBC, meanwhile, has boasted the £50bn that it has left sitting on its books, following the ringfencing of the retail bank, means it also has more money than it knows what to do with.
So why give it away in savings interest when you could make a fortune for it as a mortgage?
What is the best advice then? Equities, even though I am an advocate, are just not right for everyone.
Cash accounts have to be a safe home, but moving while the tide shifts is the only answer to avoid getting soaked.
It is unfamiliar names, such as Paragon and Bank of Cyprus, that now represent the best homes for cash (at least at the time of writing).
Mark Carney, the ever-unquotable technocratic BoE governor, seems to be living under the impression that further rate rises will pile pressure on lenders to increase savings rates as the cost of borrowing in the wider economy rises.
Maybe he, too, has forgotten the neat footwork the banks put in to raise their margins. The banks, though, have not.
Nationwide must not follow bad behaviour of the banks
Nationwide really has taken a hammering recently for its decision to scrap phone banking services for payments.
It then rankled me further when it announced its decision on savings rates. The society delivered the news via press release, but it failed to say what it had moved from. Further questioning revealed the rates had risen by as little as 0.1 per cent in many cases.
What grates with Nationwide is that its actions frequently betray its boasts of being an organisation on the side of its members.
Chief executive Joe Garner, formerly of BT’s Openreach, is proving inaccessible and out-of-touch. That he also gets £600 a day in expenses sends a message that he is doing the job for his own gratification rather than that of customers.
If Nationwide is going to take on the banks it must set higher standards.
It must be honest and transparent – not follow the bad behaviour of the rest.
Smith sets a good example
Once more Terry Smith’s Fundsmith features high on Hargreaves Lansdown’s list of most sought-after investments.
Mr Smith may live in Mauritius, he may rarely buy stocks, but his fund routinely outperforms its rivals.
Not only is he clearly a genius, but because he invests £200m of his own cash it makes all the difference to the psyche of running a fund.
As a personal investor, it gives me reassurance that when the fund manager has skin in the game, he is as afraid of getting burned as his clients.
James Coney is finance editor of the Daily Mail
