A new online auction site for fixed-term cash deposits is to be launched next week, allowing savers to seek competing interest-rate ‘bids’ from banks and building societies.
Money Show Update
Audio: Aloysius Fekete of MaxBips explains how savings auctions work
MaxBips.com, which goes live on Monday, will conduct no-obligation half-hour auctions, into which savers can enter cash lump-sum ‘lots’, of £30,000 or more. Savers will be able to specify the term for the deposit, from 30 days to 2 years, and then wait for institutions, such as Barclays, Lloyds and Bank of Ireland, to quote their best rates.
Only banks covered by the UK Financial Services Compensation Scheme or the Irish government’s 100 per cent deposit guarantee, may subscribe to the service to make a bid. Overseas banks that are authorised to operate in the UK by the Financial Services Authority and are included in the UK compensation scheme, such as ICICI Bank, may also bid.
At the end of the auction, savers have half an hour to evaluate the bids, and choose whether to accept any of them.
Rates recently bid for a one-year deposit of £30,000 ranged from a low of 1.09 per cent to a high of 4.6 per cent – in line with the best rate currently available on one-year fixed rate bonds, according to savings monitor Moneyfacts.
MaxBips.com believes that its auctions will enable savers to secure a competitive interest rate for most large deposits. Aloysius Fekete, managing director of the parent company Alox Limited, said: ”At a time when interest rates are falling, MaxBips is a boon to investors by helping them to potentially increase their returns significantly. When you’ve got people and businesses trying to extract every percentage point they can possibly get, without exposure to risk, this is the tool.”
Once a saver accepts a bid, the ‘winning’ bank is given the saver’s name and contact details, to make arrangements to receive the cash. MaxBips acts only as an introducer, for it charges savers a £49 annual fee, and so does not handle saver’s money.
Online exchanges can offer higher interest rates, but work by matching savers directly with individual borrowers, rather than with banks.
Zopa.com, the first person-to-person online lending exchange, arranged £1.2m-worth of loans between members in December, providing an average return to those lending money of 9 per cent, after charges. According to co-founder Giles Andrews, “Now that banks have all but given up trying to address their liquidity problems by attracting savers, more and more people are discovering the fabulous returns they can earn on their savings by becoming a Zopa lender.”
However, savers bear the risk of borrowers defaulting on their loans, and not repaying the amounts in full. To reduce this risk, Zopa splits each cash deposit between a range of individual borrowers, which has so far kept the default rate down to 0.2 per cent.
Comparing rates is difficult, though, as future default rates cannot be predicted. “With Zopa, there are no guarantees on rates, and who knows what the level of default is on those rates,” said Michelle Slade of Moneyfacts. “We don’t list Zopa because you can’t monitor the rates.”
Rates offered via MaxBips.com are also likely to vary, according to the banks’ need for cash deposits. “It depends on whether somebody needs the sums at the time – you’re not going to get such a great rate when there is less demand,” argued Slade. “At least with a fixed rate bond, you can see what you get.”
For more details, read the report in FT Money on Saturday, January 31
