FX trading companies in Britain may benefit from NatWest’s plan to charge customers interest for being in credit
Don’t want to PAY interest to actually deposit cash and be in credit at the bank? Try a retail FX account instead!
NatWest, one of Britain’s largest retail and commercial banks which has been owned by RBS since the year 2000, is considering making a very controversial ruling in seeking to levy charges for deposits, which no matter how it is disguised or glossed over, represents an attempt to introduce negative interest rates meaning that small businesses and investors could lose money from their accounts for being in credit at the bank.
This week, NatWest sent 850,000 business customers a letter which indicated a change in terms and conditions of their accounts which means that an account holder with £1,000 in a current or business account could see this reduce to £999 or less within 12 months due to the introduction of a negative rate of interest.
Last week the Financial Conduct Authority outed HSBC, First Direct and the Post Office as retail banks that provide easy access accounts that in some circumstances pay no interest. Whilst on the face of it not a regulatory matter, due to the banks not engaging in any malpractice by not paying interest, it is perhaps an unfair deal that banks get to trade customer money without paying for it, yet if a customer takes credit, they pay handsomely. In many cases unauthorized overdrafts on business and personal accounts at British banks are chargeable at £15 per day plus very high interest, putting them on a par with the nefarious payday loans firms that are considered ‘back street’ alternatives to banks.
Whilst charging customers to be in credit may appear extremely bizarre, this could benefit FX trading companies which have a largely British customer base.
Electronic trading giant FXCM gives interest at a rate of 5% APR to customers with balances in their trading account, even if they do not trade their account.
Australia’s AxiTrader was an early pioneer in offering interest rates on customer accounts with a minimum equity free or margin of $10,000 (Australian dollars), increasing this to 1% in January 2015, which at the time was higher than the Royal Bank of Australia’s base rate minus 1.5% per annum.
In March 2015, Alpari followed suit, and began offering a remarkably high 10% interest on customer deposits. Whether trading terms (or method of execution employed by Alpari) are attractive or even relevant, customers could simply open a trading account, lodge funds with the company, never trade and withdraw the interest, taking an entirely different perspective on risk, instead providing the company with larger Assets Under Management figures for which the company remunerates the account holder in return with no exposure to financial markets risks or to the company’s dealing desk.
One company that used to offer interest on client accounts that has since put a stop to it is OANDA Corporation, which in April last year removed the facility to accrue interest on client account balances.
The banking sector making negative interest charges at central level is not unheard of either.
The European Central Bank already charges other banks 0.4% to deposit cash, while the Swiss National Bank charges domestic banks up to 0.75%. Last week, ABN Amro, a major Dutch bank, has told customers that because of ‘exceptional market conditions’, it may be necessary to charge negative interest rates in the future.
Whilst currently NatWest has no plans to implement negative charges to personal accounts, only to businesses, this still could be a future good market for FX companies which could onboard small businesses as commercial entities by offering retail trading accounts which pay interest.