Banks yet to pass on the full interest rate rise, but how does P2P compare?
BANKS have partially begun increasing the returns on their savings products in response to last month’s interest rate rise, but savers aren’t getting the full benefit, data shows.
Research by financial comparison website Moneyfacts shows that mainstream banks have started passing on part of the increase in rates, but not the total increase.
For example, HSBC has increased its easy access online rate to 0.45 per cent, which is up just 0.2 per cent.
Moneyfacts highlights that challenger banks are offering better deals, with BM Savings offering a market-leading easy access rate of 1.45 per cent.
“It’s now been a month since the Bank of England increased base rate by 0.25 per cent and savers have had to wait with bated breath to find out if they will benefit,” said Rachel Springall, finance expert at Moneyfacts.
“Unfortunately, while plenty of rate rises have now been announced, some savers will find that they haven’t benefitted from the full 0.25 per cent. Savings providers appear to have been very selective about which accounts get the full rise.”
Meanwhile, another comparison site, Savings Champion, has warned savers are losing up to 144 times the amount of interest by sticking with low-paying high street banks who are not passing on the full increase.
For example, Santander’s Instant Saver has gone from 0.01 per cent to 0.10 per cent – a rise of just 0.09 per cent, while HSBC’s Flexible Saver has not passed on any of this additional amount, leaving savers languishing on 0.01 per cent.
Anna Bowes, director of Savings Champion, said savers could instead earn 144 times more with the 1.45 per cent offered by BM Savings.
“Some providers will argue that they haven’t increased rates by as much as the base rate rise, because they are matching what they dropped them by last year, when the base rate was cut,” Bowes said.
“But often that will be because the rate of interest they were paying was so low that they couldn’t actually cut by the full amount.
“A general malaise has spread across the savings market because of the continual low rates of interest available. But savers need to realise that the high street banks are using this to offer them much lower rates than they can get elsewhere because of the feeling that ‘there is not much to be gained by switching.”
All the rates pale in comparison to what peer-to-peer lenders are currently offering for easy-access style deals.
Rates on P2P platforms are typically set by supply and demand rather than the Bank of England base rate, but the pricing is usually better than what mainstream brands have to offer.
For example, personal and business loans platform RateSetter currently offers investors 3.8 per cent on its rolling market account, while business lender Assetz Capital offers 3.75 per cent on its quick access account.
Other P2P lenders may not market easy access products but have secondary markets where loans can be put up for sale.
Established P2P brands such as consumer lender Zopa and business platform Funding Circle offer rates from 3.7 per cent and 4.5 per cent respectively.
There are higher returns available. For example, business lender Rebuildingsociety offers rates of between 14 per cent and 18.2 per cent while property platform Lendy offers 12 per cent.
Obviously each P2P platform has a different risk profile and lending criteria both within the sector and compared with mainstream financial products, and it is more like an investment than savings account.
But it shows there is value in shopping around for savings deals from both traditional and alternative providers.