UK Banks Such as Halifax (HBOS) Underpaying Cash ISA Saving Account Interest Rates
Interest-Rates / ISA's Jan 18, 2010 - 12:53 AM GMTBy: Nadeem_Walayat
The tax payer bailed out bank Halifax (HBOS), which was forced into a shotgun wedding with Lloyds TSB in Sept/Oct 08 to prevent nationalisation, the combined group later going on to become defacto nationalised as the HBOS exploding mortgage book shredded Lloyds TSB's balance sheet to pieces, illustrates the consequences of an artificial banking system as borrowers and savers pay the ultimate price of bailing out the banks.
HBOS is presently offering 2 year fixed rate savings accounts to its customers.
The 2 year fixed rate Web saver paying 4.2% AER
The 2 year fixed rate Cash ISA paying 3.50% AER
Why is the majority government (tax payer) owned bank under paying TAX FREE accounts by 21.5% ?
The tax charged on savings is 20% for most tax payers that fall into the basic rate tax band. Therefore not only are CASH ISA savers not getting ANY of the TAX FREE BENEFITS but are in fact GETTING LESS than for virtually an identical NONE tax free savings account.
What does this imply ?
It implies that the GOVERNMENT apparently does NOT want people to utilise tax free savings accounts, it WANTS people to PAY Taxes and hence opt for the TAXABLE Accounts in advance of TAX RISES in the next financial year.
At this point in time the only winners are the NON TAX PAYERS, as they can get the full 4.20% interest tax free as under the circumstances they would LOSE money by depositing into the CASH ISA equivalent.
Unfortunately the practice of short changing Cash ISA savers is widespread across the whole UK banking sector where virtually ALL banks pay significantly less on tax free accounts when compared with their taxable savings accounts which negates virtually all of the tax free benefits of the Cash ISA savings accounts.
This IS as a consequence of Tax Payers bailing out the bankrupt banks that instead of competing in an open free market banking system instead suckle at the teat of the Bank of England for liquidity flows at a rate of just 0.5% and only marginally higher in the interbank market, whilst the tax payers, borrowers and savers are pick up the bill in the form the of the spread between interest rates as the following graph illustrates the spread between the rate the banks borrow from the Bank of England and the interbank market and the SVR rate charged to mortgage customers.
The only way Britain can have a market based banking system is if tax payer support of the banks that allows them to enjoy huge profit margins is removed, for if any of the banks cannot compete then they have no place to continue being in business at the detriment of the borrowing and saving British public and tax payers.
UK Interest Rates Forecast 2010 and 2011
Market interest rates are already on a climb, especially for borrowers with even savings rates recently perking up. I expect the Bank of England to play catch-up mid 2010, with small baby step increases so as not to offer too much distress to the infant like banks as it weans them off excess liquidity. Last weeks in-depth analysis and forecast for UK interest rates for 2010 and 2011 concluded :
UK Interest Rates Forecast 2010-11: UK interest Rates to Start Rising From Mid 2010 and Continue into end of 2010 to Target 1.75% / 2%, Continue Higher into Mid 2011 to Target 3%.
For the full implications of the interest rate trend forecast, read the full analysis here.
Source: http://www.marketoracle.co.uk/Article16561.html
By Nadeem Walayat
http://www.marketoracle.co.uk
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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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