UK Paper Warns Savers vs Robber Banks Filching Their Money

When investment managers tell you that bank shares represent a steal, and that the good times are here for the banking industry as a whole, you know they know something we haven't really thought much about, Jeff Prestridge wrote for Money on UK’s Financial Mail.

Photo Insert: The higher the net margin, the fatter a bank's profits.

“Namely, that as the economy teeters on the edge of recession, inflation rages like a goaded bull and energy bills are heading ever higher, the banks are lining their pockets at our expense. Profits uber alles. They're smiling...all the way to the bank. Even the government is on the side of the banks. Last week, it announced a number of measures – the 'Edinburgh' reforms – designed to free the banks from some of the regulations introduced in the aftermath of the 2008 financial crisis to protect customers,” Prestridge added.

Higher interest rates are like gold dust for the banks because it gives them greater scope to make money from the difference they charge borrowers in mortgage or credit card interest and the interest they pay savers – resulting in billions of pounds in profits every year.

When the base rate plunged to 0.5 percent in the wake of the 2008 financial crisis, to 0.25 percent in the aftermath of the EU referendum vote, and then to 0.1 percent as the UK went into lockdown, the opportunity for banks to make money from the interest differential between the rate charged to borrowers and that paid to savers was severely circumscribed.

But the proverbial worm has turned since this time last year when the Bank of England started to ratchet up base rate – eight times in less than a year, nine times if it signals another rise on Thursday.

As the base rate has pushed up from 0.1 to 3 percent, the chance for banks to widen the gap (the net interest margin) between what they pay savers and charge borrowers has increased. In simple terms, the higher the net margin, the fatter a bank's profits.

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