What’s next for the banking sector in 2023?

Susannah Streeter: Hello, and welcome to Switch your Money On from Hargreaves Lansdown. I’m Susannah Streeter, I’m Head of Money and Markets here at Hargreaves Lansdown. And as usual I’m with Sarah Coles, our Head of Personal Finance. So, Sarah unless you’ve been living under a rock you really can’t have missed the ongoing banking turmoil, that seems to bring with it another development every other day in the US.

Sarah Coles: Yes, you can’t help but be reminded of the financial crisis, and the collapse of Lehman Brothers back in September 2008.

Susannah Streeter: Yes, I was pulling all-nighters covering what was happening with UK banking bailouts that autumn.

Sarah Coles: I was also pulling all-nighters, but that’s largely because my youngest child was only a few months old, so nothing to do with the banks.

Susannah Streeter: Thankfully the big banks have built up bigger capital buffers since then, but what’s happening with US regional banks is still causing quite a few frayed nerves.

Sarah Coles: So, we thought we’d dive under the bonnet of the banking sector in this episode, which we are calling “banking on it”.

We’ll have a chat to Sophie Lund-Yates about some of the big banking results out over the past few weeks and what they indicate about the state of the sector.

Susannah Streeter: Plus, with an eye on what appeared to have triggered the first high profile banking collapse in the US this year, Silicon Valley Bank (SVB), we’re going to train our focus on what’s happening with bonds, and what could be ahead with HL Share Analyst, Matt Britzman. Hello Matt, it’s an interesting time for the bond market isn’t it?

Matt Britzman: Thanks for having me on to start with, and yes, it certainly is. The mix of higher inflation and central banks raising interest rates in response had a huge impact on bond markets. It’s an often-overlooked aspect of investing, but provides valuable insights and has a real impact across broader financial markets.

Sarah Coles: We look forward to finding out more later. And we’re going to delve into what it’s like working in the sector right now, so we’ll be chatting to Louise Hill, a co-founder of Go Henry - a brand that has been disrupting the world of pocket money and combines a pre-paid debit card with a financial education app. Hi Louise, you’ve been around for 11 years now and gone from a brand newcomer to a real player in the pocket money market, has the environment around you changed significantly in that time?

Louise Hill: It certainly has. We have gone from the first in market with any offering that considered kids first to a much more mature market, but I’ll talk more about that later.

Susannah Streeter: Really looking forward to hearing more Louise. Particularly as I have three demanding me for pocket money each week.

But first let’s take a temperature check on where we are with the US regional banking crisis which is still ongoing. Worries have ratcheted up again that a maelstrom of problems are lurking within regional banks and that there could be another breakage as interest rates have been hiked again by the US Federal Reserve. There was hardly a pause for breath after the JP Morgan takeover of First Republic Bank before fears rocked regional banking stocks again, when PacWest’s share price plummeted. Investors were worried that it would be the next domino to fall, as concerns swirl about deposit flight and the lack of asset diversification among smaller lenders. The ease of withdrawals in the digital age is causing increased nervousness, given the speed of banking collapses over the past two months.

Sarah Coles: Yes, and although PacWest doesn’t appear to have suffered from customers withdrawing deposits anywhere near the scale of First Republic Bank, the makeup of PacWest’s lending portfolio appears to be causing some concern given that its heavily weighted to property, which is vulnerable because interest rates have continued to be hiked. Commercial real estate is under real stress because of sharply higher interest rates, with many billions of loans coming up for renewal.

Susannah Streeter: So, this appears to be a longer-term issue, rather than a short-term crisis, so it seems the regional banks under pressure right now, are suffering from acute nervousness in the market. However, there is a risk that worries will move from deposit flight to what’s on their loan books. On a systemic level, the US and UK banking system does not look like it’s in crisis – a point reiterated by both the Federal Reserve and the Bank of England.

Sarah Coles: Yes, they are keen to point out that larger banks have bigger capital buffers and as more customers divert money away from smaller banks, those cushions are being plumped up. They also have much more diversified loan books and the Federal Reserve is also standing by with funding schemes, which they can draw on, like the discount window and the Federal Reserve’s Bank Term funding programme.

Susannah Streeter: However, the expectation is that other banks may become more reticent about lending to keep more cash on hand in case there is a sudden deposit withdrawal, even though the overall risk to the wider banking system is still considered to be low. But if lending is constrained and consumers and companies find it harder to get loans this could further curtail economic activity, pushing up the risks of tougher recessions, and the possibility that more bad loans could pile up at the banks. This is a scenario that banks in the UK and Europe potentially face too – and they have been setting aside significant sums in the case of bad loans.

Sarah Coles: But UK banks results show large lenders actually appear to be in pretty robust health, which is helped by net interest margins rising. So far, the Bank of England figures don’t show much decreased appetite for lending either. There was no change in the availability of secured credit like mortgages in the first three months of 2023, and although it is expected to decrease in the three months to June, falls are likely to be close to the ones we saw last spring, and far smaller than the ones in the wake of the mini-Budget. Meanwhile, although the availability of unsecured lending, like credit cards and loans, fell in the first three months of the year, but is expected to rise again in the three months to June.

Susannah Streeter: Another hike from the Bank of England would do no harm to net interest margins, but they may have to fight a bit harder to hang onto deposits. The latest Money and Credit data from the Bank of England, which we go through regularly, showed a withdrawal of funds from the overall banking system, but it appears to be due to customers searching out higher returns elsewhere, or being prepared to spend their savings on major purchases, rather than a gauge of a drop in confidence in the banks.

Sarah Coles: And, of course, when it comes to issues around security of the banking system, it's also worth bearing in mind that when you’re saving in a bank authorised to operate in the UK, you are protected by the Financial Services Compensation Scheme (which is sometimes known as FSCS), now that’s an independent organisation, which can step in to pay compensation if banks fail, so the first £85,000 you hold with any one institution is completely protected. It’s worth getting to grips with what you hold with each institution, rather than focus on what’s in each individual account, to make sure you’re protected.

Susannah Streeter: So, this seems like a good time to bring in Sophie Lund-Yates our Lead Equity Analyst to take us through what the results of some of the big-name banks have shown. So, Sophie, to kick us off, tell us about a UK-facing bank you’ve been looking at:

Sophie Lund-Yates: Hi Susannah, so to begin with this week, I thought I’d keep it close to home and take a look at NatWest. So, like Lloyds Banking Group, NatWest is very much focussed on traditional banking. So, by that I mean your traditional banking products like current and savings accounts, small and medium business loans and of course, very topical at the moment, it’s highly exposed to the mortgage market. Being a bank with less exposure to other forms of income means interest rates hold far more influence over performance. It’s a tough balancing act, because higher interest rates often mean better profits achieved on deposits because it improves the margin in terms of what lenders pay out and earn in interest. But if interest rates are too high for too long, it means the economy struggles and this has ramifications for borrowing demand and also a higher number of people can default on their payments – that bad debt you were talking about. For now, NatWest is doing well all things considered. Total income rose almost 29% in the last reporting period, to £3.9bn. That was slightly better than expected and reflected the boost from those higher interest rates. The other side to the higher interest rates was a £70m charge put aside in readiness for an expected increase in so-called bad debt. This was lower than expected and at the moment, levels of default aren’t worrying. I realise that’s a lot of banking jargon at once, but essentially, the overall picture is that the group is looking in reasonable health. I’d just say to end on this one though, that nothing is guaranteed. A higher-than-expected interest rate environment from here could cause some difficulties.

Sarah Coles: So, that’s a quick look at one in the UK. What about something further afield?

Sophie Lund-Yates: Yes, so once again, I’m going back across the pond and I think it makes sense to have a look at financial giant JP Morgan Chase & Co. As an idea of size, JP Morgan has a market cap of about $400.6bn dollars. And it’s that huge scale that has thrust it into the spotlight in recent weeks. The Federal Deposit Insurance Corporation, or FDIC, have confirmed JP Morgan as the buyer of failed bank First Republic, with its proposed takeover of $10.6bn. This essentially makes JP Morgan the biggest lender in the US. The FDIC engineered a sale of First Republic and there are some unique elements to it. This involves the regulator agreeing to shoulder 80% of losses on residential mortgages for seven years and the same for commercial loans for 5 years. $50bn of financing will also be handed over, while JP Morgan will pay the $10.6bn to the FDIC. The reason this is a bit different is that JP Morgan won’t have to take on First Republic’s corporate debt or preferred stock. The net result of this is that JP Morgan will recognise a one-off $2.6bn gain and a $500m-a-year increase in net income, but there will also be close to $3.0bn in restructuring costs. The reason it’s important to talk about this deal is because it embodies an important shift going on in the US. While there’s still some pressure in the regional banking system, the difficulties faced by the likes of First Republic and Silicon Valley Bank is that it’s actually making the systemically important banks, so the really big names, stronger as they snap up deposits. It’s really important to remember that the challenges being seen in the US are because of liability pressure rather than because banks have bad assets sitting on their balance sheet, which is what happened in 2008. The situation we’re in now is far easier for the Federal Reserve to solve. So, to round off quickly then, I’m aware there are a lot of facts and figures in this episode today, a bit more context on how JPM is doing as a wider business. Really, I’d say that the first quarter results which came out at the beginning of May had very little in the way of surprises. One important thing to note is that expectations for US GDP growth in the current quarter have increased to 2.0% from 1.5% at the start of the year. And that’s according to JP Morgan’s estimations.

Susannah Streeter: Great, really fascinating stuff, Sophie. You’ve been looking at MasterCard too which is a bit different to a bank isn’t it?

Sophie Lund-Yates: You’re absolutely right, the likes of MasterCard facilitate transactions rather than being on the same hook for things like banks. MasterCard is more interested in the number of transactions taking place because this is one of the core areas where it makes its money. But what is similar to banks is that a sharp economic downturn does affect credit card companies as people spend less. MasterCard has annual revenue of around $22bn, with operating margins close to 57% which is very attractive. That’s because the costs associated with MasterCard’s system are very low compared to say a company that relies on factories running and being upgraded or a very large workforce doing manual work. So, MasterCard’s software model means a higher proportion of revenue can trickle down to profit. The group’s hit headlines lately as it plans to expand its crypto currency payment card programme, and will do this by seeking more partnerships with crypto firms. I’d say this remains a small area for the business but is something to monitor. Crypto assets face far less regulation than others and exposure to the sector could increase some risk. Overall, it’s important to remember that card companies don’t face the same liabilities as banks. I’d say MasterCard’s business model is attractive, but there’s a heightened risk of ups and downs given the valuation has jumped 11.2% in the year-to-date.

Susannah Streeter: Thanks Sophie, there’s an awful lot to watch out for in the coming months. Now, we can’t fully rule out the chances there could be further rate hikes – and the rapid tightening of monetary policy is considered to be the triggering factor behind the start of the banking crisis in the United States. Remember Silicon Valley Bank – the first to be taken over by Regulators and then purchased by First Citizen Bank. Well, it got into problems because it was sitting on large losses in its bond portfolios.

Sarah Coles: Yes, SVB was a big lender to the tech sector – with huge deposits flowing in during the pandemic – and the bank lent to start ups which found difficulty finding loans elsewhere. The bank put the earnings into US government bonds which is considered to be a low-risk investment, but that wasn’t the case, so, in fact due to rising interest rates the value of bond portfolios took a real battering, just at the wrong time. When questions began to be asked about the bank, customers started pulling out their money, but the nature of these bond assets meant that they weren’t liquid enough and were harder to access. So, the bank ended up selling at a discount, causing fresh concern and the eventual bank run.

Susannah Streeter: So, what’s happening with bonds right now – is this still an issue for other banks? And what are the prospects for fixed income going forward? This feels like a good time to bring in Matt to explain a bit more about what’s going on. So, Matt, what is your take on this?

Matt Britzman: As SVB showed – assets that we’ve previously thought of as pretty much as secure as you can get, ended up causing serious trouble. In fact, 2022 will go down as one of the worst years on record for US bond performance – that’s a far cry from being the boring backbone of an investment portfolio. Why was there such an implosion? Well, ultimately it boils down to the relationship between inflation, interest rates and bond prices. In short, higher inflation, and the higher interest rates that follow, are the Achilles heel of a bond portfolio. That’s exactly what we saw over 2022, when most of the damage was done actually, and it's caused a hefty chunk of value to be lost from bond portfolios, for both major institutions and individual investors.

Sarah Coles: A good bit of background there. So, where do investors go from here?

Matt Britzman: That’s a great question and I certainly don’t see the investment case for bonds as being down the drain. Generally speaking, if you have the ability to hold until maturity then you can ride out these sharp market movements. But, as we’ve seen that’s not always possible and issues pop up when you need to sell, if you’re sitting on a hefty loss - unfortunately that could mean locking it in, which is precisely what SVB had to do. The good news for bond investors is that inflation is expected to cool off, at least from the record highs we’ve seen recently. That should mean central banks can begin the process of slowing down rate rises and maybe even in some cases reversing them at some point. That’d be good news for bond prices and could help to ease the pain of investors who’ve had their patience tested but, of course, prices could still be volatile in the short-term. Ultimately, it's hard to find too many positives given the pain that's been caused for existing bond holders. But bonds now offer yields at more attractive levels than we’ve seen for quite some time. The zero-interest rate environment we’ve just come out of meant bonds offered little in the way of income. At the start of 2022, you’d be hard pressed to get a 1% yield on a 10-year UK government bond, now yields for these bonds are approaching 4%.

Susannah Streeter: Interesting stuff Matt, thanks very much, let’s hope things get less interesting for bonds going forward.

Matt Britzman: Thanks Susannah, great to come on the podcast and have a chat.

Susannah Streeter: Now, let’s go back to banking, and specifically to innovators in the market, and bring in Louise Hill, the co-founder of Go Henry. Now it has been around for a while, now, hasn’t it Louise, but when it was introduced, it was something entirely new, so to what extent would you class Go Henry as a banking disruptor – just how does it work?

Louise Hill: Yes, we’ve been around since, it was November 2012 when we launched in the UK, and yeah, we pioneered this category. It sounds very grand when I say that now, but we pioneered the category in financial education with a pre-paid debit card and financial education app, designed for kids aged 6-18. Yes, we are disrupters in the industry. We were the first people to launch, bizarrely, in the world, a solution that was set specifically for kids and teens. Really, they’re at the heart of everything we do so there’s lots of other players in the market that have something for children but this is not an add-on product for us – it’s our sole purpose. We offer a much more personalised service than maybe a traditional bank. We very much tailor our content to kids, and if you think about the difference between a 6-year-old and a 17-year-old there’s a vast difference in terms of what they need both in terms of how services are presented to them – the language that’s used, the look of something that they’re interested in – so we have to make sure our services grow with the child.

Sarah Coles: So, can I take you right back to the beginning, so really the sort of inspiration for it. Was it that you saw a particular gap in the market, or was it something you thought you might use yourself?

Louise Hill: Well, both really. The original idea was when I was faced with my two kids in front of me every Saturday morning with their hands out, and trying to figure out how I could teach them about money because they’d been lucky enough to have iPods for – I don’t remember now whether it was for Christmas or birthdays – and I had very foolishly given them the log in to my Apple account, so they were spending money willy-nilly downloading music, without a care in the world, and spending money without any concept that every click was spending money and the more parents I spoke to, the more stories I heard, so it was my own experience, but it was a gap in the market.

Susannah Streeter: So, empowering them by giving them access essentially to their own account, their own debit cards, from an early age. How do you see that really playing out to make them more responsible and really understand the real concept of money? Is it by transferring the pennies and £10 notes into the bank account and then seeing how quickly it disappears?

Louise Hill: Yes, fundamentally it’s about empowering kids to make their own decisions about money. The way that Go Henry works is that it allows a parent to set up an account to pay automatic pocket money across each week if they want to, or to set bespoke tasks and chores for their kids to do – it might be walking the dog or emptying the dishwasher, doing the washing up, and then the parent can set controls on how much the child can spend, so they can set limits on a single transaction and on a weekly spend limit, so that they can let the children and the teenagers make their own decisions and spend money but kind of within guardrails that the parent is happy with. We have so many stories from parents about how their kids originally used to kind of say, ‘Can I have this? Can I have that? Can I have the other?’ and when you’re able to say ‘Well, do you have enough money on your Go Henry card?’ suddenly that decision changes and there’s a lot more thoughtfulness about how badly do I want this item. Is it a need or is it a want? Do I want to spend my money on this or do I want to save up for something else?

Sarah Coles: Yes, I know definitely, as soon as I started paying my kids pocket money I noticed they no longer wanted to buy those magazines with plastic tat attached to the front of them, but I wanted to ask you a little bit about the environment we’re in now. So, is the way that people are using the cards changing? Are they putting less, or maybe even more pocket money onto children’s cards?

Louise Hill: We recently did some research into how the cost-of-living crisis is affecting children and teens and average weekly pocket money payments increased by over a third, 38%, in the first half of 2022, which when we talked to parents and understood why that was happening reflected the rise in inflation and the rising cost of products that kids were buying more generally. But also, during that same period, we saw children spending a lot less on what I would call non-essential items, so toys were 32% down, fashion 14% down and gaming 11% down, so really interesting to see, although the money they were getting had gone up that sort of wants versus needs decision, the non-essential items, the spend on that decreased. And we saw monthly savings increase by 14%.

Sarah Coles: One of the things about the Go Henry card is that you do charge a fee for the service. I know one of the things when I was giving my children a pittance in pocket money that it didn’t make a lot of sense to be paying a fee for it just because I was giving them so little. So, how have things changed? Are people now more likely to be happy to pay the fee, because they understand what they’re getting in return, or are you seeing people more concerned about fees when they’re cutting back on everything?

Louise Hill: We have a customer demographic that almost exactly matches the kind of bell curve – I’m waving my hands in the air here. I know you can’t see me – but the bell curve of the UK national household income bell curve, but we over-index very heavily on the two ends. Very, very wealthy high-income households, what we hear from parents at that end of the scale is that they like to use our services as a way to teach their kids the value of money. And when we talk to them we hear them saying things to the effect that their kids have got everything – that they have financially an easy life and they want something that allows them to teach their kids about earning money and there being limits on money and understanding the value, and then the other end of the scale, at the much lower household income level it’s people wanting to make sure that their children grow up understanding how to manage money, and I think particularly valuing the financial education element of it. We have money missions which are little in app gamified money lessons built in throughout the app and kids can either work their way through all the levels and points and XP points and certificates and scores, to learn about money and money decisions and how money works, and it's really that being embedded within the app – all those little nudges about why you might want to save; why you might want to donate to charity; why you might want to think before you release a savings goal. That’s really where the value lies. It isn’t just a card that you can spend money on. So back in 2014, the government made financial education mandatory within the school curriculum. However, there are only 20% of state schools in the UK left that actually are required to follow the UK curriculum and there is a real postcode lottery as to whether a particular school puts the time and the effort and has the tools to deliver strong financial education, or there is virtually none done at all. And there is no provision at all in the English curriculum – Wales and Scotland have a little bit more, for primary school kids. To me that’s astounding because there is a much-cited Cambridge University study that was done several years ago now and published by the Money and Pensions Service that shows children’s habits and attitudes to money form at the age of seven.

Sarah Coles: Moving, sort of from the really big picture maybe to something a bit more, sort of in detail. I know there has been a little bit of discussion on social media about the ease of closing Go Henry accounts. So how would you respond to people who say it could be easier?

Louise Hill: I think they are probably right. We understand the frustration, as you say there is some conversations on social media about that and we’re taking steps to address it. So, we have created a self-serve cancellation link, which we’ve trialled across a portion of our customer base and that will be rolling out incredibly soon, and we’re trialling a close account button in the parent app as well.

Susannah Streeter: It has been really fascinating talking to you Louise and certainly we’re part of the conversation aren’t we to get young people talking about money, so let’s hope these chats cascade down through the audience.

Louise Hill: Absolutely, thank you very much.

Susannah Streeter: So now I’d like to bring in Emma Wall, our Head of Investment analysis and research here at Hargreaves Lansdown. She’s been speaking to Ben Whitmore from Jupiter Asset Management.

Emma Wall: Hi Ben.

Ben Whitmore: Hi Emma.

Emma Wall: Welcome back onto the podcast, this time we are talking about banks. I thought we could briefly talk about the fact that interest rates in the UK have risen again. I say in the UK, but they have also risen in the US and in Europe. On the face of things, high interest rates mean good things for banks, why is that?

Ben Whitmore: Yes, the period we have been in since the great financial crisis has been a period of very very low interest rates. The lowest we have witnessed on record. And the reason that is so difficult for banks is that banks earn a spread between the amount of money they charge borrowers – you and I - and the amount of money they give to depositors and if base rates are almost zero the spread they can earn is very low indeed. But when the rates are higher, they can lend out mortgages at 6% and they can pay depositors 3% and they can make that spread of 3% and that’s called their net interest margin. Banks suffer enormously at ultra-low interest rates and they are much healthier when there is some level of nominal interest rate in those single digits.

Emma Wall: We have talked a little already on this podcast about recent events in the US, in particular looking at regional banks and indeed SVB. One of the things that we are looking into is why what happened, happened. There’s a suggestion that the rate that interest rates rose was actually detrimental to the bank, rather than beneficial as you suggest there. Why is that the case then that we have seen with those particular banks is the US?

Ben Whitmore: Some of the regional banks in the US are run differently to the way banks in the UK and Europe are run and regulated. With SVB, they were taking in deposits and they were then investing those in very long-dated US treasuries. Long-dated treasuries fall in value as interest rates rise. One of the problems is that they hadn’t hedged this interest rate risk, nor did they account for it in their capital stack, so when the losses became apparent, the depositors and the outside world realised that if they had to sell those long-dated assets, they would burn through all their capital. But it is very different in Europe and the UK, where not only are the banks very heavily regulated around this liquidity. But secondly, any losses have to be marked capital immediately. And because that’s the case the banks hedge them and they don’t take much risk. There are two other things worth mentioning. Firstly, rising rates are OK and are a good thing for banks, but – and it’s a big but - if rates rise too high and cause a very serious recession, which leads to serious impairments and provisions on loans, clearly there is a tipping point at which it’s not good news for banks. But I think there is another really important point where the lessons of the past have been forgotten. If you cast your mind back to just before the great financial crisis in our country, the UK… One of the things that Moody’s the ratings agency, has always said, is that the best indicator of future problems, is a very fast-growing bank. So the five years to 2006, Northern Rock grew at 31% per annum on its total assets, unbelievably fast for a low-growing, mature economy. By coincidence, the growth rate for SVB for the five years to 2021 was almost identical at 33% per annum. One of the ways that lessons haven’t been learnt is that very fast-growing banks almost always lead to problems.

Emma Wall: Moving then to the UK banks you do like, which are the banks you have in your own portfolio?

Ben Whitmore: The UK banks, the problem has almost been the opposite, that they just haven’t grown and in fact for some of the banks that got themselves into particular trouble back in 07/08, like what was then called Royal Bank of Scotland but would now be in portfolios known as Natwest Group. They’ve actually been shrinking over that entire period. What that gives you great comfort about is that a bank that’s growing very moderately, or even shrinking a bit, it means that underwriting standards for loans are unlikely to be compromised because what we do know is that we – consumers or borrowers – are quite savvy, and the bank that wants to grow the fastest has the weakest underwriting standards, so they say: “Hey we’ll lend you a mortgage and don’t worry about telling us what your income is, or the loan to value”, you know that they’re the ones picking up the highest risks. So, what we can see is that very low growth tends to mean that they haven’t been picking up the poor risks. The other thing is that the capital ratios have been building and building and building, so the capital in banks has been increasing almost every single year since 08/09.

Emma Wall: And then presumably with a slightly more positive, I’ll be cautiously optimistic, outlook for the UK economy that we had from the Bank of England this month that’s a positive sign for the banks that you like?

Ben Whitmore: We don’t tend to rely on forecasts for the future because what we do know is that it’s very difficult to forecast the future – whether you’re an investor, an analyst, or the Bank of England, but what we can say at the moment is that banks are earning reasonable returns for the first time in well over a decade, but the stock market is valuing them very cautiously as if those returns only last for a year or two. For example, Natwest Group has said that they’re likely over the cycle to earn a 14-16% return on equity and broadly you’d probably say that bank would be worth 1.4 to 1.6 times its tangible book value – the assets it’s got less the liabilities – but the stock market’s valuing it at 0.8, 0.9 of book value. There’s quite a lot of caution in bank valuations, and that’s partly because of the worries in America, but also there’s a sense that the current environment of interest rates and inflation will disappear and we’re likely to go back to an environment of much reduced interest rates – like we had in the past – which is bad for banks and therefore profits will be under pressure. So, I think there is quite a margin of safety investing in some banks at the moment. The valuation is low and the returns are much better than they have been in the past and the debate is, to what extent will those returns come down.

Emma: Ben, thank you very much.

Susannah Streeter: Well, that was Emma Wall, speaking to Ben Whitmore from Jupiter Asset Management, and please bear in mind these are the views of the fund manager and are not individual stock recommendations. You’re listening to Switch Your Money On from Hargreaves Lansdown. And now it’s that time for our stat of the week – and for this we’re going to delve into the wealth of data in the HL Savings Resilience Barometer, which revealed just how much people had in savings accounts in the middle of last year. Now, Sarah, we know this differs really widely - so we’ve gone for the median rather than the mean – to avoid people with massive cash balances distorting the figures, and it turns out that the average held in savings accounts by each household is just £322. It’s worth pointing out they may also have cash in current accounts, cash ISAs and National Savings & Investments, but in their savings accounts alone there appears to be a real shortfall.

Sarah Coles: Yes, it’s really alarming isn’t it, given that HL’s view is that we should be aiming for 3-6 months’ worth of essential spending in an easy access account for emergencies, but it’s totally understandable at a time when rising prices have forced so many people to raid their savings. And I know in our house it’s a constant battle to explain to the teenagers that savings are there for emergencies – and that running out of data on their mobile or not having the right shoes is not technically an emergency.

Susannah Streeter: And nor is getting an energy drink, particularly on the way to school, but that’s another story! Anyway, that’s all from us this time, but before we go, we need to remind you that this was recorded on May 15th 2023, and all information was correct at the time of recording.

Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Unlike the security offered by cash, investments rise and fall in value, so you could get back less than you invest and yields are variable and not a reliable indicator of future returns.

Susannah Streeter: Yes, this is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

Sarah Coles: And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.

Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So, all that’s left is for me to thank our guests, Louise, Ben, Sophie, Matt, Emma and our producer Elizabeth Hotson. Thank you so much for listening. We’ll be back again soon, goodbye.