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Negative interest rate warning highlights “need for competitive” business finance sector




By Ryan Weeks on 27th July 2016

Source: morebyless, https://goo.gl/jbgZ4B

RBS and NatWest have warned business customers that they may start charging them to accept deposits. 

 

Reacting to the threat of an interest rate cut, the two banks sent a letter to nearly 1.3m business and commercial customers, advising them that negative interest rates are a real possibility. RBS, which owns NatWest, has indicated that the move to negative interest rates could be enacted if the base rate falls below zero. The Bank of England voted in mid July to hold rates at 0.5%, despite rife speculation that they would be cut to 0.25%. However, the Bank also said that it expects monetary policy “to be loosened in August”, meaning a cut could still be on the cards. 

 

The move to negative interest rates – were it to happen – would not affect individual customers. And with the move contingent on a dramatic shift in the base rate, there is no immediate impact for the UK’s alternative finance providers. But James Sherwin-Smith, CEO of Growth Street – an alternative overdraft provider for businesses, says that the prospect of having to pay a bank to hold deposits will be “the last straw” for many businesses. He said: “This news further highlights the need for a competitive and wholly diversified business finance sector. The Government must ensure that it supports alternative providers so that SMEs are not reliant on large banks.” 

 

While the threat of negative interest rates has not yet loomed for consumers, a large number of major banks and building societies are mulling interest rate cuts. Santander’s much-vaunted 123 current account – which pays savers a rate of up to 3% – is rumoured to be facing a cut to 2%, according to Yahoo Finance.

 

Moves of this kind may well enhance the appeal of the marketplace lending sector, while likely souring consumer sentiment towards the banks. ThinCats Chairman Kevin Caley said a few weeks ago that a cut to the base rate would be “miserable news for Britain’s hard-pressed savers, who have been earning dismal returns on their money since the financial crisis”. With interest rates highly unlikely to rebound any time soon, Caley says that savers “should be rethinking their savings plans"

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