End of term funding scheme 'will increase banks’ reliance on savers'

Written by Adam Cadle

The end of term funding scheme is set to come to an end in nine days, meaning banks will no longer be able to access cash at reduced repayment rates from the Bank of England, which will subsequently increase the banking sector’s reliance on savers’ cash to supplement this source of funding, according to Insignis Cash Solutions.

Insignis Cash Solutions chairman Paul Richards said “the end of the TFS will be more important to savers than any BoE rate rise”.

“The surge in appetite for retail deposits will put upward pressure on deposit rates and result in more competitive rates for savers. Longer term savings rates will likely rise by 0.25 to 0.5% over the next year and potentially up to 1% over the next two to three years, which could see a one year term account reaching 3%.”

Richard stated that instant access rates will not rise dramatically in the short term but expects savers to “increasingly benefit from longer term savings products”.

“As banks work to replace the BoE liquidity, both notice and term accounts should see improvements further down the line.

“In the long term, the impact will be even more significant. Repayment of the £100bn TFS loan is compulsory and banks will have four years to complete repayments. After 28 February, the countdown will begin and banks will need to reassess their long-term funding plans, relying increasingly on retail deposits; these funds are classified preferentially under regulatory ratio requirements and tend to be more ‘sticky’ over the long-term.

“As the UK economy remains relatively robust and the number of challenger bank entrants continues to rise, with over 20 currently looking to enter the market, competition for retail deposits will increase. These factors, combined with the end of TFS, will help to create the perfect storm for savers, pushing rates higher and increasing the options available to them.”

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