Banks are angry that the government’s National Savings & Investments (NS&I) are providing savings products that beat inflation, considering it unfair competition.
That’s fair enough. NS&I is backed by the full weight of the Treasury, which means that any money you put with them is risk-free and guaranteed by the state.
But wait a minute: it seems that the savings in your favourite high-street are also backed by HM Treasury. That government garauntee on the first £85,000 in your bank account is underwritten by the government. If you bank goes and loses your money by say, lending it to people without jobs in sub-prime America, then the government can simply hike up taxes to reimburse you or fund say, a massive bailout package for RBS or HBOS.
What the banks conveniently forget to mention in their complaints about NS&I is the fact that this government guarantee saved them £100bn in 2009, and continues to save them tens of billions each year. This is because, if the government did not step in to implicitly shoulder 100% of the risk that banks take with our money, then we’d demand higher interest rates from them (to compensate us for the higher risk).
By making our savings ‘risk-free’ – regardless of how riskily the bank actually invests the money – the government is providing a huge taxpayer-funded subsidy to the banks.
This is unfair competition. No business outside of finance benefits from such a high level of taxpayer support and subsidy. Yet the banks still succeed in convincing politicians and the authorities that they are the power house of the economy.
We think it’s time to call their bluff…
For more about the NS&I savings products check out ThisIsMoney. (Needless to say, we’re not financial advisers and nothing you read here counts as financial advice.)