In the labyrinthine world of banking and investing, where opacity tends to masquerade as tradition, few are aware that amidst the ebb and flow of financial markets, a significant number of banks and brokers choose to retain the benefits of central bank rate hikes, rather than passing them on to their clients.
This practice, while not immediately visible, has significant implications for all people, and it’s time we shed light on the subject. Yes, the financial industry must make money – so do we at Saxo – but the balance needs to be right; we need to nurture win-win relationships with our clients.
As we navigate the complex terrain of personal finance, the interest rates offered by banks may seem like an esoteric concept, distant from everyday concerns. However, what often goes unnoticed is that not all banks treat these rates in the same way.
While a few embrace a customer-first approach, swiftly sharing the benefits of rate hikes with those who entrust them with their funds, most follow a different path.
It appears that the playbook of banking after years of low interest rates is to reap the benefits of rate hikes, often at the expense of their clients. This is evident in the banks’ quarterly results, where some even appear surprised at the profits reported – most of them as a direct result of central bank decision-making. This has also brought the UK financial regulator to call on financial institutions to improve the deposit rates offered to consumers. MPs on the Treasury Select Committee have been pressing banks and building societies to give a better deal for savers as interest rates have risen, through a series of hearings and letters.
The playbook appears to be the same across the Eurozone, where the average bank interest rate on instant-access deposit accounts for households is only 0.23% on an annualised basis. This at a time when the European Central Bank (ECB) official deposit rate is at 3.75%!
Central banks have raised rates frequently over the past year to curb inflation. While the intent behind such a move is to lower inflation and aggregate demand (by making saving money and “cutting back” more attractive), the reality can be quite different for those who fall victim to what appears to be the new norm.
The Bank of England’s explainer on the topic reemphasises how important it is that consumers understand how a change in interest rates could impact their ability to pay while in Europe, the ECB acknowledge, “it also works the other way around. Interest is the money the bank pays you on your savings, i.e. when the bank borrows money from you.” If that was indeed the case…
This brings us to the heart of the matter. At Saxo, we refuse to accept the status quo. Our Immediate Rate Hike Pass-On Policy is a direct response to an industry landscape in which clients’ interests are not being fully served.
We recognise that the financial choices our clients make are not simply numbers on a spreadsheet – they represent dreams, aspirations, and the pursuit of a better future. It’s our responsibility to ensure that these aspirations are met with timely and transparent actions, rather than a queue of delayed benefits.
Our Immediate Rate Hike Pass-On policy is not a mere gesture. It’s a commitment to redefine the bank-customer relationship – higher interest rates may benefit our business, but should also benefit our clients. We believe in win-win.
The policy signifies Saxo’s determination to place clients – and their success – at the forefront of our operations. I hope the industry will reflect on its priorities and embrace a philosophy with the values of trust, transparency, and client-centricity at its core.
Consider this more than an op-ed – it’s a call to action. Not just for the industry, but for the investors and savers that should demand more.
Embracing change means going beyond buzzwords. As we take this stand, we invite the entire financial ecosystem to join us in reshaping the norms of saving and investing – because every client deserves to enjoy the benefits they’ve earned, and every institution should aspire to put customers interests first.
The article is written by Kim Fournais, CEO and Founder of Saxo Bank.
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