🔔 📰 Financial Press Review (week commencing 22 September 2018)

We’ve seen many new names enter the UK savings market over the last few years, but this one has really got the press going. 

But that’s understandable as it is a giant US investment bank, and as The Times reported was previously dubbed the ‘vampire squid’ for its part in the financial crisis a decade ago. But it entered the UK consumer market this week under the brand Marcus (named after the investment bank’s founder Marcus Goldman) and the rate of 1.50% projects it immediately to the top of the easy access best buy table.

Other savings news included NS&I forging ahead with the controversial rate cut to Direct ISA savers, even though there has been a base rate rise since they announced that this would be happening in July this year. As The Mail on Sunday points out – the new rate of 0.75%, is the same rate as was paid on the account when the base rate was 0.50% lower than it is today.

And further to the shock rise of the rate of inflation in the year to August, a number of the papers reported the bad news that just 1% of savings accounts are paying interest that will keep pace with, or beat CPI. As our article last week pointed out though, it’s still important to choose the best rates for any money you hold in cash, in order to mitigate the effects of inflation as much as possible.

And as The Telegraph last Saturday mused, low interest rates and therefore your cash not keeping pace with inflation, doesn’t take away the importance of saving. However, as the most recent savings ratio figures from the Office for National Statistics indicate, this is a message that is not getting through, as the amount people are saving keeps falling.

The Federal reserve raised US interest rates again last week, by a quarter of a percentage point to 2.25%. According to The Times, due to America’s robust economic growth and buoyant jobs market, they can expect another increase this year, which would total nine increases since 2015. Whatever happened to that old adage of ‘if the US sneezes, the world catches a cold’?

There were also a couple of articles this weekend that could explain, but not excuse, some of the miserly behaviour from the savings providers. According to The Sunday Times, banks are cutting the cost of their best mortgage deals, despite the recent Bank of England base rate rise – albeit on fixed rate mortgages. But, as David Hollingworth from L&C says, “You would expect any Bank rate increase would filter through into mortgage rates but almost the reverse is true”. Once again, savers lose, borrowers win.

The Sunday Times penned an interesting article last weekend warning that peer-to-peer (P2P) lenders have not yet been tested by a severe and prolonged recession, which many fear could happen in the wake of Brexit. While that is a worry, as the P2P industry has seen rapid growth during a period of relative economic stability and low interest rates, it is good to read that certainly some of the key P2P lenders are taking a potential future recession very seriously. According to the article, they are preparing for the worst – to see how bad it needs to get before people start to lose money. It’s a reminder that this is an untested market, so savers who turn to P2P need to be aware that it holds a very different risk to the cash savings market.

One of the UK’s biggest P2P lenders, The Funding Circle, is looking to float on the London Stock Exchange in the next few weeks. However, according to The Financial Times and The Times, Funding Circle, which is a loss-making company, has recently seen the price range for its offer cut from  420p and 530p which would have valued the company at up to £1.80 billion, to 440p and 460p, reducing that upper valuation to £1.50 billion.

Finally, while not about cash savings specifically, we often see articles about funeral bills and a few recent articles recently have pointed out that funeral costs have risen by 4.70% in the last year and have more than doubled in the past 15 years. Many people take out a pre-paid funeral plan, but according to  a report by Fairer Finance, apparently millions of people over 50 have been contacted by unregulated telesales staff and many sold plans that would not cover their funeral costs. The Government is planning tougher regulation but customers can protect themselves in the interim by choosing a Funeral Planning Authority (FPA) registered provider, such as Dignity.