1.2 The NLMB interest rates have not changed in the intervening period and interest rates currently applied are as per Table 1 below
Table 1: Interest Rates as from the 1st May 2004
|
Interest Rate Bandings |
Gross Interest Rate |
|
£1 - £999 |
3.00% |
|
£1,000 - £4,999 |
3.25% |
|
£5,000 - £24,999 |
3.75% |
|
£25,000 - £49,999 |
3.85% |
|
£50,000 + |
4.00% |
1.3 Table 2 below shows the movements in the Bank of England base rate since the last interest rate change.
Table 2: Bank of England (BoE) base rates
|
Date of MPC Meeting |
Base rate decision |
|
6 November 2003 |
3.75% |
|
5 February 2004 |
4.00% |
|
6 May 2004 |
4.25% |
|
10 June 2004 |
4.50% |
|
5 August 2004 |
4.75% |
|
4 August 2005 |
4.50% |
|
3 August 2006 |
4.75% |
|
9 November 2006 |
5.00% |
|
11 January 2007 |
5.25% |
|
10 May 2007 |
5.50% |
|
5 July 2007 |
5.75% |
As the table highlights, interest rates rose by 1.00% in just under 12 months.
1.4 At its most recent meeting on the 4 October 2007, the Monetary Policy Committee (MPC) of the Bank of England decided to keep the base rate at 5.75%. Due to the current turmoil within the financial markets and general uncertainty regarding the repercussions of the US sub-prime mortgage crisis, economists and market researchers do not anticipate a change to the interest rates in the near future with possibly a 0.25% reduction early 2008.
2 . Interest Rate Review
2.1 Following the last rate change by NLMB on May 2004, the Bank of England (BoE) base rate has changed on no fewer than 10 different occasions as detailed earlier in Table 2.
2.2 Following the BoE base rate change in August 2007, the interest rates for a range of accounts for other financial institutions were compared to NLMB's rates. The comparator range is the closest account type identified when compared to the services available within the NLMB.
2.3 Table A per the attached Appendix 1 demonstrates that NLMB is still offering competitive rates when compared to other financial institutions excluding internet based accounts.
2.4 Highlight alternative savings accounts available to depositors that have came on the market in recent years. These are not directly comparable to the NLMB instant access savings account.
2.5 Table 3 below highlights the movement in the total depositors' balances for the last 12 months to the 30th September 2007 and the quarterly balances.
Table 3: Depositor Balances analysis
|
Quarter ended |
Depositor Balances |
Movement |
|
30 September 2006 |
£28.8m |
|
|
31 December 2006 |
£28.5m |
-£0.3m |
|
31 March 2007 |
£29.3m |
+£0.8m |
|
30 June 2007 |
£29.2m |
-£0.1m |
|
30 September 2007 |
£28.0m |
-£1.2m |
2.6 Over the twelve month period there has been an increase of 1% in the Bank of England base rate, with other similar banks and financial institutions reacting to this by increasing their interest rates.
2.7 The NLMB continually monitor the depositor balances and the interest rates being offered by other financial institutions for similar type accounts and decided in the previous twelve months to apply the rates set as per Table 1 above i.e. no change.
2.8 The depositors balances have fallen marginally by £0.8m (2.8%) over the 12 month period indicating that despite there being a general rise in interest rates available the NLMB tiered interest rates remain attractive in comparison to similar accounts with other financial institutions.
2.9 In addition it demonstrates that the availability of Internet based accounts offering similar and better interest rates have not to date, had a major impact upon the level of NLMB depositor balances.
3 Conclusion
3.1 Despite the movement in the BoE base rates and the NLMB rates remaining constant over the same period NLMB continues to be competitive. Therefore there is no underlying reason to alter the tiered rates of interest at this point.
3.2 A periodic review of the level of depositors' balances, comparator interest rates, and the BoE base rates will continue to be undertaken.
4 Recommendation
4.1 The Board is asked to note the report.
