Plum to launch “Plum Interest” in UK and EU to counter banks’ low rates on deposits
“The current system is fundamentally flawed. Banks are incentivised to maximise the difference between the rate they lend at and their cost of deposits in order to grow their new interest margin. That means they’re effectively incentivised to pay the lowest possible rate to their depositors to maximise profits.”
Plum has announced it is planning to launch a new “Interest” offering in Q3, so customers can benefit more quickly and directly from rising central bank rates.
Customers in the UK and EU will be able to hold their money in government-backed assets that more closely reflect the respective interest rates offered by the Bank of England and European Central Bank.
The return from this “Plum Interest” product is expected to be significantly above the highest rates available on easy-access savings accounts, the firm announced.
According to Plum, money held within this pocket will be easily accessible to customers. All monies will also be subject to regulatory safeguarding rules, which means they will be secured in a separate, segregated account.
This “Plum Interest” product is based on a type of highly liquid money market fund that invests fully in short-term assets issued and guaranteed by the Government. That makes this type of money market fund particularly stable. As recent history has shown, governments are also the ultimate backstop for banks and other financial services, underlining the security of this new offering.
The “Plum Interest” product is expected to be offered in the European markets where the Plum app is available.
“Banks are incentivised to pay the lowest possible rate”
Victor Trokoudes, Founder and CEO of Plum, said: “Many high street banks have not only been slow to raise their interest rates, but also in too small increments. In fact, the best easy access savings rate from a high street bank is around half the Bank of England base rate. At the same time, they’ve been quick to ramp up the cost of lending. The current system is fundamentally flawed. Banks are incentivised to maximise the difference between the rate they lend at and their cost of deposits in order to grow their new interest margin. That means they’re effectively incentivised to pay the lowest possible rate to their depositors to maximise profits.
“Enough is enough. At Plum, we’re going to provide our customers with an account that generates interest at a level much closer to the BoE and ECB base rates. Our product will allow people to put their money directly to work with the Government via a money market fund rather than see their return diluted by a banking intermediary. People have worked hard for their money so their money should work harder for them, and we’re committed at Plum to make their money motivated.”
“The recent growth in popularity of money market funds show they’re an increasingly mainstream option for people to hold their money. That’s because more people are recognising the added safety that comes with assets fully guaranteed by governments, irrespective of how much money you hold. With our “Plum Interest” product, you won’t have to worry about constantly switching banks to get a higher rate as the product tracks changes in the central bank base rate. We’ll be bringing this revolutionary cash management option to our 1.6 million customers so they can diversify where they hold their cash”.