Stop Interest Rate Incentive Con

Stop Interest Rate Incentive Con.

The new financial services regulator, the Financial Conduct Authority (FCA) has confirmed that it is exploring the possibility of interest rate incentives when people invest money in banks and building societies.

Many investors are confused and caught by seemingly attractive and high interest rates that then fall to next to nothing after the bonus period ends.

For example, here is a recent Cash ISA rate: 2.8% gross variable. Rate includes a bonus of 1.0% bonus for the first year. This is attractive but then once the lender has pulled in enough new investment money, it closes the tranche and then next year may drop the rate even further. This is then lower than most average variable cash rate deals.

Yet with the money it receives, it is then lending this out to mortgage borrowers at rates of 4 and 5% pa. But these are not cut in the same way next year.

Our view
The interest rate con has been going on for years. We welcome the FCA taking a look at it as a clear and fair deposit interest rate and mortgage lending rate policy can only be good for the stability of the economy.

Competition is welcome and should be encouraged between banks but not by conning investors with over inflated rates that are withdrawn quickly.