Trusting the big banks with our savings

Research* by the independent market analyst has revealed that in an ironic twist consumers are depositing their savings with the very banks which were at the centre of the credit crisis, increasing their grip on the savings market.

With the research predicting an increase of £285 million (about R3.334 billion) by 2014 in deposits of savings, and with the big banks already leading the market, they are poised to cash in, aiding a belief that they are too big to fail.

Roderick Logan, analyst at Datamonitor said: "Despite concerns about the bank itself, consumers will understandably go with the product which offers them the best rate. Interestingly it is Lloyds, Nationwide and Santander who have been among the most competitive with rates in a bid to increase their deposit base so they rely less on the wholesale markets. Their size allows them to do this, which makes it harder for new entrants or smaller players to compete. In many ways it's a catch-22 and makes it difficult for consumers, who want to get the best return on their savings to choose anyone else but a big player."

Competition set to increase

However, Datamonitor believes that with more consumers saving and deposits so important to banks and building societies, competition is set to increase. As a result the big players cannot afford to be complacent as the small, medium and new players may start to put them under pressure. One of the indicators of this competition is the amount these smaller players are investing in advertising in a bid to win over consumers. For example although the big players have traditionally spent the most, in the first half of 2010, ING Direct was the most advertised brand - spending more than £5.7 million on advertising its retail saving products.

Logan added: "With an increase in the amount consumers are spending, the smaller players will have to work hard and increase their expenditure in areas such as advertising to convince them to move away from the big players."

Related Research: *UK Retail Deposits 2010

©Datamonitor 2011