Hoarding trend reflects low confidence in banks

08/12/2009

Customer trust in banks has been hit by the credit crunch - leading many to stuff their money under their mattresses rather than taking out a savings account.

Andrew Bailey, executive director of banking and chief cashier at the Bank of England, told a US conference that the value of notes in circulation had risen since the onset of the crisis.

In all, there is £9 billion worth of £50s in use today, up from £7 billion two years ago.

Meanwhile, banknotes' collective value has hit 3.2 per cent of the UK's annual economic output, an increase from the 2.4 per cent measured in the 1990s.

Mr Bailey suggested that these figures provided evidence for the "hoarding" trend.

Last year, with the credit crunch at its peak, the stability of the banking system as a whole came into question.

The UK government was forced to part-nationalise three firms in a £37 billion share-buying deal in October 2008.

Mr Bailey commented: "Demand for banknotes has risen during this recession, and particularly for high denomination notes, reflecting loss of confidence in banks … The total value of Bank of England banknotes in circulation continues to rise, but their use in transactions is falling gradually."

The remarks were made at the Banknote Conference, held in Washington DC.

"It is a concern when consumer confidence in our high street banks reaches a point where we revert to old fashion methods of hiding cash under the mattress," Kevin Still, EuroDebt director, commented.

"It is reported than many of 'middle England' are voting with their feet and looking for alternative providers with more transparent fees. EuroDebt's clients are typically already in financial difficulty and incur sizeable levels of bank charges, so we decided to launch our own prepaid current account.

"The facility has a flat £12.50 monthly fee and there are no charges for bounced direct debits or standing orders. It is available at www.bankswitching.co.uk, there are no credit checks and the facility is available to people on a Debt Management Plan, an IVA or Bankrupt."

Tags; Debt Management and Banking, Young Family Finances, Retirement Money Problems, Credit Card Lifestyle, Recent Graduate Debt,

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