How Can Libor Be 5.9%, But Banks Pay Me >6% ?

[dumb-tabloid reader]

Never understood why a bank would pay me 6.17% interest when libor rate is lower?

Also, if the BOE will lend to the banks at 5.25%, why would the banks pay interest to saver above this rate?

Anyone know where I'm going wrong here?

[ImA20SomethingGetMeOutOfHere]

Never understood why a bank would pay me 6.17% interest when libor rate is lower?

Also, if the BOE will lend to the banks at 5.25%, why would the banks pay interest to saver above this rate?

Anyone know where I'm going wrong here?

Because your bank is desperate for cash and nobody will lend to it? Because it's a shonky bank that's teetering on the edge and the only deal it can get from the money markets is LIBOR + a premium?

Oh and BoE loans are supposed to be strictly short term. It's not supposed to be the central bank's job to finance half the mortgage sector.

[Optobear]

Never understood why a bank would pay me 6.17% interest when libor rate is lower?

Also, if the BOE will lend to the banks at 5.25%, why would the banks pay interest to saver above this rate?

Anyone know where I'm going wrong here?

First off, you might have to tie up your money for several months, and they think rates might rise.

Second off, they are trying to hook you, and will then try to sell you crap like insurance, credit cards you don't want, etc.

Third, they are not able to borrow at Libor because they have leant all their cash to BTL'ers who blown it on two bedroom flats. Now they are up sh.t creek, and no one else will lend them the cash.

Optobear

[redgenieuk]

Because your bank is desperate for cash and nobody will lend to it? Because it's a shonky bank that's teetering on the edge and the only deal it can get from the money markets is LIBOR + a premium?

[redgenieuk]

Never understood why a bank would pay me 6.17% interest when libor rate is lower?

Also, if the BOE will lend to the banks at 5.25%, why would the banks pay interest to saver above this rate?

Anyone know where I'm going wrong here?

Pretty much like i'm a 20 something said.

You bank in Iceland, or with Northern Sh*te, A&L or B&B?

[john_coller]

I asked exactly the same question last week.

The mortgage rates are less than the saving rates, it doesn't make sense.

Mortgages

First Direct First Direct Fixed 4.75% For 2 years 6.25% after 6.3%APR

Stroud & Swindon Stroud & Swindon Fixed 5.09% to 31/05/13 7.29% after 6.9%APR

First Direct First Direct Fixed 5.49% For 10 years 6.25% after 5.9%APR

Manchester Manchester Fixed 5.74% Up to 30 years 5.74% after 5.9%APR

Savings

Northern Rock Northern Rock Tracker Online 6.25% / 6.25% Variable

ICICI Bank HiSAVE ICICI Bank HiSAVE Savings Account 6.16% / 6.0% Variable

Icesave Icesave Easy Access Savings Account 6.05% / 5.89% Variable

[Joey122]

I asked exactly the same question last week.

The mortgage rates are less than the saving rates, it doesn't make sense.

Mortgages

First Direct First Direct Fixed 4.75% For 2 years 6.25% after 6.3%APR

Stroud & Swindon Stroud & Swindon Fixed 5.09% to 31/05/13 7.29% after 6.9%APR

First Direct First Direct Fixed 5.49% For 10 years 6.25% after 5.9%APR

Manchester Manchester Fixed 5.74% Up to 30 years 5.74% after 5.9%APR

Savings

Northern Rock Northern Rock Tracker Online 6.25% / 6.25% Variable

ICICI Bank HiSAVE ICICI Bank HiSAVE Savings Account 6.16% / 6.0% Variable

Icesave Icesave Easy Access Savings Account 6.05% / 5.89% Variable

This is an interesting point

Does anyone actually know?

[Sinking Feeling]

Could be possibly to do with capital adequacy requirements ie that a certain amount of its borrowing has to come from secure sources.

[Guest happy?]

I asked exactly the same question last week.

The mortgage rates are less than the saving rates, it doesn't make sense.

Mortgages

First Direct First Direct Fixed 4.75% For 2 years 6.25% after 6.3%APR

Stroud & Swindon Stroud & Swindon Fixed 5.09% to 31/05/13 7.29% after 6.9%APR

First Direct First Direct Fixed 5.49% For 10 years 6.25% after 5.9%APR

Manchester Manchester Fixed 5.74% Up to 30 years 5.74% after 5.9%APR

Savings

Northern Rock Northern Rock Tracker Online 6.25% / 6.25% Variable

ICICI Bank HiSAVE ICICI Bank HiSAVE Savings Account 6.16% / 6.0% Variable

Icesave Icesave Easy Access Savings Account 6.05% / 5.89% Variable

And there you have it. Even someone such as yourself looks at the headline borrowing rate. How much are the arrangement fees - I'll email you a tenner for everyone of the above with a fee under £999.

[time 2 raise interest rates]

Never understood why a bank would pay me 6.17% interest when libor rate is lower?

Also, if the BOE will lend to the banks at 5.25%, why would the banks pay interest to saver above this rate?

Anyone know where I'm going wrong here?

The banks can pay you 6.17% because most of the suckers that have a mortgage with them are on SVRs

at around 7.25%+, and all the lowish two year fixed rate mortgages in the other posts are the "hoick you in

rate" you pay an extortionate signing up fee then at the end of the fixed rate you chucked on the SVR, as

most who took two year fixed at 2.99% a couple of years ago are now finding out, and this is why

repossessions will soar this year as most cannot afford the big jump in resets which will inturn lead to house

prices crashing.

Hope this helps.

[eek]

And there you have it. Even someone such as yourself looks at the headline borrowing rate. How much are the arrangement fees - I'll email you a tenner for everyone of the above with a fee under £999.

Well first direct (where my mortgage is) is £299 booking fee and £299 offset fee. Could you donate the £20 to shelter please.

[dumb-tabloid reader]

Thanks, I think I understand I bit more now.

Although when BOE or FED offer Billions, it makes me wonder why the banks don't go get that money instead of my more expensive money?

[Bloo Loo]

Well first direct (where my mortgage is) is £299 booking fee and £299 offset fee. Could you donate the £20 to shelter please.

Not forgetting your savings requried in the offset account, and the exit fees.

[time 2 raise interest rates]

Thanks, I think I understand I bit more now.

Although when BOE or FED offer Billions, it makes me wonder why the banks don't go get that money instead of my more expensive money?

As in an ideal world the banks are meant to lend out your money and the BoE are lenders of last resort.

Edited March 16, 2008 by time 2 raise interest rates

[DEATH]

I don't think the BOE lends to anyone at the base rate, isn't it usualy the penalty rate of base rate + 1%?

Then again, everything is to be kept secret in future so who knows what is going on.

[loafer]

There are, I think, three questions in this thread, so here goes with my explanation;

Why do they give me a better rate than LIBOR?

Deposits are generally longer term than 3 month LIBOR so it is a more stable source of liquidity. In addition, whilst LIBOR is the nominal interbank rate, most banks will pay a premium to this, so if you are, say Barclays, you'll pay LIBOR + 10 bps and if you are "tin pot Bank plc" you might pay LIBOR +75bps. Therefore, your deposit is more competitive.

Do they pay alot to get my money so it improves their capital position?

Deposits do not count towards capital adequacy per se, but are a benchmark (particularly at the moment) for the FSA and share analysts in determining the stability of the institution.

How can mortgages cost less than LIBOR?

Because LIBOR is a short term money market measure, whereas mortgages with lower rates are generally medium term, have additional fees or have tie-ins. A two year fix costs the bank 2 year Swap + interbank spread to finance, not 3 month LIBOR + spread.

[ImA20SomethingGetMeOutOfHere]

I asked exactly the same question last week.

The mortgage rates are less than the saving rates, it doesn't make sense.

Mortgages

First Direct First Direct Fixed 4.75% For 2 years 6.25% after 6.3%APR

Stroud & Swindon Stroud & Swindon Fixed 5.09% to 31/05/13 7.29% after 6.9%APR

First Direct First Direct Fixed 5.49% For 10 years 6.25% after 5.9%APR

Manchester Manchester Fixed 5.74% Up to 30 years 5.74% after 5.9%APR

Savings

Northern Rock Northern Rock Tracker Online 6.25% / 6.25% Variable

ICICI Bank HiSAVE ICICI Bank HiSAVE Savings Account 6.16% / 6.0% Variable

Icesave Icesave Easy Access Savings Account 6.05% / 5.89% Variable

There's part of your answer in bold.

[time 2 raise interest rates]

Interest rate swaps at the close of business 14 3 2008.

Ask.

1 year 5.55%

2 year 5.03%

3 year 4.95

4 year 5.00%

5 year 5.01%

6 year 5.02%

7 year 5.02%

8 year 5.02%

9 year 5.03%

10 year 5.03%

[Guest happy?]

Well first direct (where my mortgage is) is £299 booking fee and £299 offset fee. Could you donate the £20 to shelter please.

What the hell is an offset fee?

How does it cost £500 just to arrange a mortgage?

Can I be the only person who thinks all these charges should by regulation be included in the APR table so that we can make a meaningful product comparison.

[purplemonkey]

Isnt' it due to the way banks can lend 10x the amount deposited.

for example if a bank balance sheet looked like this...

deposits or savings = £1,000 @6.1%/yr =£1,061 ie it costs them £61

Lendings = £10,000 @4.9%/yr = £10,490 ie they make £490

bank is overall 429quid better off.

I think they will also only need to borrow from Libor when there 10x leverage is breached. so if they can increase savings ie actual money then they can go on to lend it out and make more profit from it, hence the good rates of interest out there at the moment.

please correct me if I'm wrong, I got this knowledge from youtube vids and you crazy lot on here, I'd hate to think my sources having been filling my head with nonsense.

[Bloo Loo]

Isnt' it due to the way banks can lend 10x the amount deposited.

for example if a bank balance sheet looked like this...

deposits or savings = £1,000 @6.1%/yr =£1,061 ie it costs them £61

Lendings = £10,000 @4.9%/yr = £10,490 ie they make £490

bank is overall 429quid better off.

I think they will also only need to borrow from Libor when there 10x leverage is breached. so if they can increase savings ie actual money then they can go on to lend it out and make more profit from it, hence the good rates of interest out there at the moment.

please correct me if I'm wrong, I got this knowledge from youtube vids and you crazy lot on here, I'd hate to think my sources having been filling my head with nonsense.

AHHH but where does the extra £9000 come from ??

[loafer]

Isnt' it due to the way banks can lend 10x the amount deposited.

for example if a bank balance sheet looked like this...

deposits or savings = £1,000 @6.1%/yr =£1,061 ie it costs them £61

Lendings = £10,000 @4.9%/yr = £10,490 ie they make £490

bank is overall 429quid better off.

I think they will also only need to borrow from Libor when there 10x leverage is breached. so if they can increase savings ie actual money then they can go on to lend it out and make more profit from it, hence the good rates of interest out there at the moment.

please correct me if I'm wrong, I got this knowledge from youtube vids and you crazy lot on here, I'd hate to think my sources having been filling my head with nonsense.

You are completely wrong ;-)

You need to think about two sides of the coin.

1 is the ability to lend - let's assume your 10 times capital, it's not far off. The bank has £1,000 of capital and is therefore allowed to lend £10,000. The £1,000 is effectively equity, and the return the equity investor wants is not related to LIBOR.

2 is the cash, i.e. liquidity. If they actually want to lend £10,000 as they are allowed, where is the cash going to come from? Either from deposits or from the money markets. As Northern Rock found, depending upon the money markets too heavily is a mistake!

PS Don't listen to the nutters too much, it's bad for your sanity.

[Ah-so]

Deposits are generally longer term than 3 month LIBOR so it is a more stable source of liquidity. In addition, whilst LIBOR is the nominal interbank rate, most banks will pay a premium to this, so if you are, say Barclays, you'll pay LIBOR + 10 bps and if you are "tin pot Bank plc" you might pay LIBOR +75bps. Therefore, your deposit is more competitive.

Actually LIBOR is defined as the average rate that these banks lend to other banks. There is a panel of, I think, 15 banks. The British Bankers Association takes these rates mid-morning, excludes the highest and lowest and then publishes the rate.

Barclays will be able to borrow at LIBOR (and is probably on the panel). Small banks will pay a premium to LIBOR. Although rates fluctuate, a corporation with an A1 short-term rating should be able to borrow at about LIBOR +0.5%.

[The Masked Tulip]

There was an article on this in Moneyweek back which highlighted how much over LIBOR each of the banks were paying. It is probably online.

[loafer]

Actually LIBOR is defined as the average rate that these banks lend to other banks. There is a panel of, I think, 15 banks. The British Bankers Association takes these rates mid-morning, excludes the highest and lowest and then publishes the rate.

Barclays will be able to borrow at LIBOR (and is probably on the panel). Small banks will pay a premium to LIBOR. Although rates fluctuate, a corporation with an A1 short-term rating should be able to borrow at about LIBOR +0.5%.

It's a nice theory, but in practise I'm not aware of a single bank currently paying below or at LIBOR in the markets, including the big ones.