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Bank deposits fall

Pensioner bond surge ‘a risk to savings and loan rates’

pensioner bondsBanks may be forced into raising the rates on loans after the popularity of the government’s pensioner bond scheme saw a slump in deposits.

Thousands of older savers have bought the high-return bonds which represent a much more attractive proposition than most bank deposit accounts.

Chancellor George Osborne launched the bonds paying up to 4% interest in January and has extended the offer until after the May General Election. More than 600,000 over-65s have bought a bond.

The slump in deposits, however, are likely to cause some alarm as banks rely on savers to provide a range of products such as mortgages and other loans and there have been concerns for some time that these may rise in price if deposit levels shrink.

Richard Woolhouse, chief economist at the BBA, which represents the banks, said: “We’ve seen a sharp drop in bank deposits in the last month as savvy customers take advantage of the attractive rates on offer through the Government’s pensioner bond scheme.”

In its latest banking statistics report, the BBA says borrowing generally is on the rise.

Mr Woolhouse said:  “There continues to be strong demand for personal borrowing which is at its highest levels in recent years.

“The housing market appears to be bottoming out with a slight increase in approvals for new purchases in the last month but this is still significantly down on the levels of activity we saw last year.”

Key points in the report are:

·         Annual growth in personal loans and overdrafts (+3.9%) continued to rise, to the highest rate since late 2008.

·         Mortgage approvals were little changed in January compared with December, but were still 20% down on a year ago.

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