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British banks profit from a nation of debt

I’ve been investigating investment options recently – currently any money I don’t spend at the end of the month simply collects in my saving account. This seems a bit pointless considering the low interest rate these days.

Sofia is very good (being an economist and all) and has a number of funds which she administers via a nifty little online system provided by her Swedish bank SEB.

The cool thing about her system is that it presents a whole lot of investment funds (both SEB and non-SEB) and you simply select the ones you want to buy into, type in what you want to invest, and it’s done. If you want to sell, that’s easy too.

Sadly, there doesn’t seem to be anything like that all here in the UK. My bank doesn’t even offer investments other than individual share dealing, and most of the others seem to have very limited ranges. A quick glance through some of the top banks in the UK shows that they are far more interested in pushing you their credit cards than they are their (token gesture) investment products.

And here lies the rub. The UK is a nation of debt. And banks probably profit far more from debt that than they do from investment.

If you average out all debt in the UK, every man, women and child owes over £17,000 ($31,000) worth of debt including mortgages (source: Bank of England via BBC News). That’s a trillion pound debt and exceeds the whole external debt of Africa and South America combined (before we “dumped the debt”, at least I think we did…).

Just looking at unsecured loans, mainly credit cards, each adult in Great Britain owes on average £6,100 ($11,000) (source: UK office of national statistics). Here’s a breakdown of the average family’s unsecured debt burden in the UK (via the BBC):

graph showing the excesses people owe in unsecured debt

The BBC even make a TV series about the amount of debt young people have in the UK, called “the Bank of Mum and Dad“.

Think of the interest coming off these loans, particularly as unsecured debt will held at much higher rates than the Bank of England 4.5%. Many credit cards in the UK have interest rates higher than 15%! And don’t forget this is just personal debt – we’re not even thinking about corporate debt here.

No wonder the financial institutions aren’t interested in those with a bit of money in the bank. They’re far more interested in those who have nothing (or less) in the bank.

Published in Thoughts and Rants


  1. Rich Rich

    Hi Ben

    The Charity Bank apparently lets you exploit the UKGov’s Give As You Earn system, so that by effectively lending money to charities (by putting your cash into a savings account at the bank) you’re able to claim the 28%, or something (I don’t fully understand it myself!). What it amounts to is a more generous savings account than other banks. No idea on the details though.

    I’ve not tried it, but saw it recommended on (in itself a very good site).


  2. Ben you are absolutely right about the duplicity of UK banks, although I suspect this is not purely a UK phenomenon. Whilst ‘bad debt’ is clearly a problem for banks, returns from the normal level of debt carried by individuals (who service their debts but make very little progress reduding it) constitutes a significant part of banks’ income.

    It’s interesting that the banks are reluctant to provide this information, it tends to be bundled within their overall investment return numbers.

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