Bank of England: Very Low Yields on Bank Funds
UK interest rates have stabilised and this is reflected in the returns by UK banks to the Bank of England. However, the statistics published by the Bank of England are not very clear. According to the data the effective rate for outstanding ‘sight deposits’ of non-financial corporations is 2.56%.
According to the Bank of England website this rate is defined as ‘Monthly average of UK resident monetary financial institutions’ (excl. Central Bank) sterling weighted average interest rate, interest bearing sight deposits from private non-financial corporations (in percent) not seasonally adjusted.
Overnight deposit interest rates for corporates should closely follow the Bank of England ‘current bank rate’. This means that non-financial corporations are forgoing interest of 2.69% on bank funds, when this rate is compared to the Bank of England ‘current bank rate’ of 5.25%.
Much of this must be down to one of two things. Banks are just not paying market rates for ‘sight deposits’ or corporations are not seeking market rates for their money. Either way this represents a huge loss to corporations.
Most companies and organisations have bank account structures and configurations that are not optimised. Billions of bank funds are yielding very poor interest returns. Banks are profiting from higher interest rates at the expense of their customers.
The headlines show a decrease in the effective rate for sight deposits from 0.04% from 2.60% in September to 2.56% in October and an increase in the effective rate for time deposits of 0.05% from 4.59% in September to 4.64% in October.
Interestingly the Bank of England does not report separately the effective rate for current accounts. Operating cash (though more valuable to banks than term deposits) in particular attracts very poor returns from UK banks.
Companies and organizations can typically achieve a 10x return over 5 years by optimising their banking arrangements with Bankhawk.
PNFCs deposits and loans
A PNFC is a private non-financial corporation.
Effective interest rates for: PNFC’s on stock outstanding of deposits and loans
Outstanding facilities
1. The effective rate for sight deposits decreased by 0.04% from 2.60% in September to 2.56% in October.
2. The effective rate for time deposits increased by 0.05% from 4.59% in September to 4.64% in October.
3. The effective rate for loans decreased by 0.03% from 6.81% in September to 6.78% in October
Effective interest rates for: PNFC’s on new deposits and loans
New business
1. The effective rate for time deposits decreased by 0.05% from 4.78% in September to 4.73% in October.
2. The effective rate for loans increased by 0.25 % from 6.63% in September to 6.88% in October.
Table: Effective Interest Rates paid/received on PNFC balances by UK MFI’s (excluding Central Bank)
Per cent – Not seasonally adjusted
Source: Bank of England – Statistics – Published on 29 Nov 2023
