Funding for Lending Scheme used to ‘Rip Off’ Customers!

Funding for Lending Scheme used to ‘Rip Off’ Customers!

Banks are now been accused of using the funding for lending scheme to ‘rip off’ customers. It seems that the Funding for Lending Scheme (FLS), has sent interest rates on savings accounts plummeting. This means that it is  almost impossible for savers to secure a decent rate on their cash.

The original idea was that the funding for lending scheme (FLS) was to be as vehicle in order to reduce bank costs by providing cheap state backed loans however it now appears that many lenders have cutting rates on savings accounts more than on new loans.

house price crashAndrew Bailey, a senior member of the Bank of England, admitted recently that many banks had cut rates for savers after the £80 billion scheme was introduced last summer.

The cheap loans were meant to be passed on to customers in the form of cheaper mortgage rates, but because lenders can borrow money at reduced rates, there is less need to get money from customers in the form of savings. That is why savings rates have plunged downwards.

According to Moneyfacts, a comparison website, the number of savings accounts with an introductory bonus has more than halved to just 11 since the scheme was launched and the size of bonuses paid has also been cut from 2 per cent to 1.25 per cent.

Figures show that  the number of savings accounts paying above the base rate of 0.5 per cent fell by 304 last year 162 of these disappeared from the start of November 2012.

Sylvia Waycot, a financial expert at Moneyfacts, said: “Savers are being persecuted without borrowers getting the rewards”.

There does not seem to be any let up from these dismal rates either, because the funding for lending scheme (FLS) has an 18 month window where providers can borrow money and four years thereafter to lend the money out.

Alhtough MoneySupermarket, another compariaon website said that borrowers “are benefiting from cheaper rates” as a result of the funding for lending scheme (FLS).

A spokesman for the British Bankers’ Association (BBA) said: “The banks participating in Funding for Lending have committed to ensuring the scheme provides effective results for customers.”

Santander spokesperson Nicola Hussey added that the “scheme had not caused the bank to reduce the rates on instant access savings accounts”.

However, Tracy Fletcher, spokesperson for Skipton Building Society said the scheme “does appear to be impacting on the rates available to savers”.

Paul Winter, chief executive of Ipswich Building Society, agreed though he said “it is mainly larger banks which have reduced the rates on offer”.

Unfortunately there is little savers can do at this stage. One option saver could consider is peer to peer lenders, as they can offer higher interest rates than  lenders as they cut out the middleman.

In conclusion it seems that in light of these new accusations “the jury is still out” on whether the Funding for Lending Scheme (FLS) is delivering what it was set up for.

 

 

 

 

 

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