Abacus Daily Debt News

Credit Crunch Is Good News For Savers.

Lenders are desperate to get hold of our money as conventional credit streams are harder to come by.

Most building societies work on the principal that money from savers is lent out to borrowers at a higher interest rate, making a tidy profit for the lender.

Often there is an imbalance between money in savers accounts and money lent to customers. Therefore many lenders borrow themselves from other financial institutions to make money available to their customers wishing to borrow.

Northern Rock had business model with a larger ratio of money borrowed from other institutes to savers money than other high street lenders. That’s why when the credit crunch bit - it was not able to continue trading without the government providing the extra funds.

The major financial institutes are currently cautious about lending money between themselves - this is what is referred to on the press as the credit crunch. To overcome this they are pushing the boat our to get savers money in the short term.

There are currently some great short term (3 months, 6 months, 9 months) saving bonds on offer boasting an interest rate of about 1.5 above the Bank of England base rate of 5.50% (Correct on 17th Dec 2007)

For banks to offer savings rates higher so higher than the base rate is not normal, and reflects the current financial climate to the benefit of savers.