Savings turmoil
Transcript
Clare Francis: Well, what a week it's been. On Monday we were talking about the nationalisation of Bradford & Bingley and the fact that it might actually bring some stability back to the market. But obviously at that point we thought that a US bailout plan had been agreed, but then the House of Representatives surprisingly voted against the rescue package and the markets around the world were thrown in to turmoil.
Kevin Mountford is with me today and is head of banking at Moneysupermarket.com.
Q1: Kevin, it's been quite an incredible week hasn't it! You and I have both done a lot of media work on the way that savers are reacting to all this turmoil. We've had the Irish Government offer a total guarantee and protection on all savings which has lead to people puling money out of UK institutions. What is going on? Are people really panicking?
Kevin Mountford: Yes, as you say it's been a crazy period. I guess this is the third video blog we have done in as many weeks and every time we do one we think, that's it, things have settled down. I think what's been ironic is that people have been looking to Governments all around the globe to take decisive action to stem this economic meltdown for two reasons. One it will give people some confidence back to the banks, they'll start to love each other again and trade with each other again but more importantly, it will give confidence to the man on the street and there clearly has been decisive actions as you've just explained.
But I'm not sure if its worked for the banks yet, I still think there's uncertainty there, who's next in terms of consolidation, who else is going to declare financial problems and more evidently this week its clearly not working for consumers and there's people moving money around just to ensure that they've got a safe haven, even to the effect that they're disregarding rate in some areas purely just to get their money where they think it is going to be safe.
Q2: Because obviously the UK Government have said that they'll increase the protection offered under the financial services compensation scheme from £35,000 to £50,000. For most people that is a perfectly adequate level of protection, but it doesn't seem to be stemming the out flow does it?
Kevin Mountford: No, and without getting too political, I think the Government are burying their head in the sand. At the end of the day they're saying there's not going to be any issue in terms of you losing your money and they are saying they have proven that with the action they have taken with HBOS and Bradford & Bingley - for me there's been reactive measures, they should have been pro-active. How can they on one hand say there's no risk and on the other they aren't prepared to put their money where their mouth is and increase the limits. And we talk about £35k or £50k covering 95 or 98 per cent, that's at account level per institution, its not necessarily at individual level and even since the Northern Rock situation 12 months ago, there has been a steady movement of people spreading the risk across accounts and the Government have been consulting on this for months and now we need some decisive action.
We're talking about unfair competition from Ireland and I guess there's some merits in that, Northern Rock clearly suffered from it a year ago - market leading rates, 100% guarantee - European Competition Commission said 'that's not fair, we will cap the amount of money you will get' and no doubt the European Summit next week will decide some thing similar with Ireland, France, Greece or anybody else who wants to go down this route. But, at the end of the day, they can discuss these things as long as they want - the man on the street is genuinely worried.
Q3: I was in Blackpool earlier in the week talking to people and even those who have got less than £35,000 in savings are still really, really worried. I was talking to one lady who said she feels like pulling her money out of Halifax and putting it under the mattress and it is just this on going uncertainty isn't it, people are just really worried that they are going to lose all of their life savings.
Kevin Mountford: Yes, exactly, I don't see there's a great deal of new money coming into the market, this is very much about existing money just churning itself and people are moving accounts - in the past its very much been about to get the best rate, at the moment, as I say, its about putting it where they think it's the safest.
Q4: Yes, we've seen Northern Rock pull some of its deals, even though they weren't market leading rates, it's obviously attracted huge sums of money because of the 100% guarantee.
Kevin Mountford: Yes, I mean there'll be certain spokespeople within the industry that'll say "we're not really seeing the movement that everybody claims we are - well for me, Northern Rock closing its books in terms of some of it's leading savings products shows that they are up to capacity in terms of what their allowed to take as part of this competition commission, and our site for the first 3 days of this week we saw three times more activity in the Irish banks than we did for the same period last week, so for me that's clear evidence that people are taking action.
Q5: We are still seeing new accounts being launched aren't we? We've seen Tesco launch a new deal this week. So it is still a brilliant time to be a saver if you move your money around and take up the best rates.
Kevin Mountford: The economists believe now that inflation is going to peak, and I think there'll be an opportunity for the MPC / Bank of England to reduce base rate, and economists then believe that we'll get a steady decline of inflation and base rates into 2009. At the moment savings rates are similar to mortgage rates, totally decoupled from bank base rate - it's all about competition and the fight for customer savings, and I see that there'll be more new products coming into the market and there'll be re-pricing just to ensure that they can get what they can. And especially if some of the UK brands are losing money to their European banks competition.
Q6: What is going to be needed to restore calm to the market? Is it going to be the Government coming out and saying ok we'll do the same as the Irish Government and we'll protect a 100% of savings?
Kevin Mountford: I don't think they'll do that, I don't think they should do that, I think that would be irresponsible because let's face it, this is meant to be a guarantee, and by guarantee that means you could pay out if called upon. I think it's claimed that £1.9trillion would be needed in the UK to cover all of the savings - I mean, the question is could the Irish Government actually bail everybody out if they needed to?
But it's about trying to calm the waters as far as consumers, because of perception rather than reality. What do we need? We need stability at a global level. We need the US to put the rescue fund into place, we need similar sorts of clear guidelines coming out of Europe, a bit of stability in the market and then we can start to move forward.
Clare Francis: Thanks Kevin, no doubt we'll talk again next week.
Kevin Mountford: Thank you.
