Thrifty customers take revenge on banks for years of zero interest when their checking accounts are in credit.
They are piling up billions in accounts that pay higher yields, new analysis shows, creating a headache for banks.
Credit agency Moody’s revealed that this trend is reducing lenders’ profits. He points to Bank of England figures showing that over the past year £5bn has been withdrawn from non-interest-paying current accounts, while £50bn has gone into interest-paying deposit accounts.
Current accounts have traditionally been a cheap source of finance for banks and building societies. This is because the main source of profit for lenders is the gap – or margin – between the interest rates they charge borrowers and the rates they have to pay to savers.
In recent years MPs have criticized banks for being “ungenerous” with the rates they offer depositors.
Smart: Customers are piling up billions in higher-paying accounts, new analysis shows, creating a headache for banks
The charge was that banks quickly increased the interest charged to borrowers when the Bank of England began raising rates, but much more slowly in passing on the benefits to savers.
Now it seems that the tables have turned. Bank of England figures published last week show that households deposited £8.5 billion in banks and building societies in March alone. It was the highest net inflow since October 2022.
Of this, £1.6bn went into instant access savings accounts and £2bn into “term deposits”, which typically pay higher interest if left untouched for a fixed period.
Another £3.2bn went into Isas, a trend that usually occurs in March as it is the end of the financial year.
But a net £640m was withdrawn from non-interest-paying current accounts.
The Moody’s report said: ‘UK banks have traditionally funded themselves through personal current accounts, which pay no interest and are a cheap source of funding for them. A shift towards longer-term interest-bearing deposits from interest-free deposits indicates that banks’ margins will come under pressure.
Moody’s said UK banks had enjoyed “exceptionally strong” profits in 2023 due to high rates from the Bank of England, but now expected margins “to come under pressure from competition in the mortgage market”.