Interesting

One of the good things I'm hoping might come out of the takeover of the Bank of Bermuda by HSBC is an end to the derisory rates of interest currently offered on the Island.

Current accounts here offer zero percent interest. Nil. Nada. Nothing. So obviously they're not a good place for your money. But savings accounts aren't much better.

The standard instant-access savings account offered by the Bank of Bermuda currently pays a rate of 1.75%. This is actually better than the rate offered by HSBC in the UK for an equivalent account, which varies with the amount of money you have in it, but goes no higher than 1.65%. But no-one with any sense would leave much money in an instant access savings account. And it's when it comes to the higher interest-bearing accounts that the choice offered to Bermudians is poor.

Take the Bank of Bermuda's 90 and 180-day notice savings accounts, which offer 1.625% and 1.75% respectively. Why an account that requires you give notice to withdraw your money should offer the same or less interest than an instant access account is beyond me. The person I spoke to at the bank seemed a bit confused too. The only suggestion she could offer was that perhaps it would be useful for those people who needed a little enforced financial discipline. Compare this to the UK where the interest on an HSBC 60 day notice account starts at 1.95% for up to £5,000, going up to 2.8% for over £100,000.

The discrepancy is even larger for fixed-term deposits. The best you can do with the Bank of Bermuda is 3.375% for a 5 year fixed term. By contrast, an HSBC fixed deposit bond for just 3 years yields 4.50%. And in the UK you could also invest up to £3,000 per year in a cash ISA - tax-free and with instant access - at a rate between 3.35% and 4.25%.

When you consider that Bermuda's rate of inflation averaged 3.2% last year, rates like these mean that almost no matter what kind of bank account you have your money in, its real value is being slowly eroded. Because of this, the banking system here appears to provide Bermudians with a strong incentive to spend their money rather than saving it, or at least invest it all in equities and get out of cash. Can that really be in the long-term economic interest of the country?

But most Bermudians probably have no idea how little interest they're getting on their money in the bank. Unlike HSBC, which posts comprehensive details of the interest rates on its accounts on its website, the Bank of Bermuda does not. Afraid of people finding out just how miserly they are, perhaps?

Comments

[Fraz on 17.02.04 at 23:05]

Phil: unfortunately, many of the things you complain about are common in the US too. I'd be really surprised if rates change with HSBC coming in.

As for your question about investing in equities, it absolutely can be in the best interest of the country (but perhaps not the individual). They gain several ways: every time you make a trade you pay a fee and/or commission (good for the broker/bank you trade with). Every time you make money on your equities, they tax your gains, which benefits the government (of course, losses you should be able to write off against tax liability also).

[JJ on 18.02.04 at 11:20]

You should take a look at the rates offered by Capital g bank. They are far better than those offered at bank of Bermuda. At the end of the day you really can't compare rates on BMD to those available in GBP. It's a different currency. Our rates are driven much more by what goes on in the US and rates on savings accounts there are almost nada. Now HSBC's arrival might mean borrowing rates come down a bit but don't expect to get paid more for your savings.

[The Limey on 18.02.04 at 12:28]

Having moved here from London, my tendency is to compare things with how they are in the UK. However, you're right: it would have been more meaningful to compare the rates being offered by HSBC in the US to the Bank of Bermuda's rates. The latter are actually a lot better.

[The Limey on 18.02.04 at 12:32]

Fraz - Capital gains tax is one thing we don't have to worry about in Bermuda. Which is good for savers, but bad for Government revenues.

[Fraz on 18.02.04 at 21:08]

No capital gains tax? I'm going to have to take all your whining about the cost of living in Bermuda with a large block of salt from now on. What else don't you have to pay that the rest of the world does?

[The Limey on 18.02.04 at 22:06]

Income tax (well almost none, anyway) and water bills (we collect it all on the roof).