Safe Haven Savings Products - UK - December 2007

Table of Contents

• Issues in the Market
• Report coverage
• Market definitions
• Abbreviations
• Market in Brief
• Current economic uncertainties are positive for savings market
• Northern Rock -- A crisis of confidence
  • Figure 1: Agreement with the statement ' The Northern Rock crisis hasn' t made any difference in my attitude towards saving' , November 2007
• Key consumer research findings - 33% have opened a new account in last two years
  • Figure 2: Agreement with the statement ' I have opened a new savings account within the last couple of years' , November 2007
• 31.5 million people own a safe haven savings product
  • Figure 3: Number of savers, by type of account, November 2007
• 67.3 million savings accounts held with MBBG and building societies
• NS&I performs strongly
• Halifax remain the leading provider
  • Figure 4: Volume share of the savings account market by type of provider, November 2007
  • Figure 5: Number of personal customers registered to access their accounts via the telephone or online, 2001-06
• Broader Market Environment
• Key Points
• Level of savings expected to grow
  • Figure 6: Trends in pdi, consumer expenditure, and savings, 2002-12
• Steady increase in the amount of savings per capita
  • Figure 7: Average savings per UK adult aged 16+ at current prices, 1991-2012
• Five Bank of England rate rises and one cut...
  • Figure 8: Bank of England base rate and RPI, November 1990-October 2007
• ...but inflation continues to rise
• Backlash for providers not passing on rate rises
• Strong FTSE performance undermined by weakening investor sentiment
  • Figure 9: FTSE 100 and FTSE all-share indices -- daily movements, May 1997-September 2007
• Credit crunch provides boost for savings rates
• Property remains an attractive investment
  • Figure 10: Average mix-adjusted house prices in the UK and savings ratio, 1989-2007
• FTB deposits drive savings activity
• Consumer debt reduces capacity to save
  • Figure 11: Amount outstanding on secured loans on dwellings and consumer credit, 1997-2006
• Key target group for savings set to increase
  • Figure 12: Size of UK population, by age group, 1999-2011
• Number of ABC1s also set to increase
  • Figure 13: Distribution of the adult population aged 15+, by socio-economic group, 1993-2012
• Internal Market Environment
• Key Points
• Consumer climate favours savings rather than spending
  • Figure 14: UK spending and savings climate, 12 months moving average- Indexed, July 2002-July 2007
• 37% of people intend to place cash on deposit
  • Figure 15: Intended cash-based deposit based activities, Q3 2002-Q3 2007
• A third of people intend to save in an ISA
• ISAs to be simplified and extended
• Northern Rock -- A crisis of confidence
• Crisis highlights deficiencies with FSCS
• Northern Rock withdrawals force review of FSCS
• Review of the Banking Code
• Improving financial capability- positive for savings market
• Savings Gateway Scheme
• CAB to promote savings and investments nationally
• Cash reunited -- highlighting dormant accounts
• Competitive Context
• Key Points
• Changing attitudes towards finances
• Growing preference for property
  • Figure 16: Number and value of buy-to-let sales, 1999-2006
• Increase in cost of borrowing affects ability to save
• Equity returns improve attractiveness of collective investments
  • Figure 17: Retail sales of unit trusts and OEICs by IMA members, 1996-2006
• A-Day boosts sale of pensions
  • Figure 18: Individual pension sales, 2001-06
• High-rate current accounts compete with savings accounts
• Stashing cash at home
• Strengths and Weaknesses in the Market
• Strengths in the market
• Economic conditions
• Flight to safety
• Lower operating costs equal higher interest rates
• Improving financial capability
• Weaknesses in the market
• Competitor products
• Relatively high product penetration -- increased customer churn
• Loss-leading products -- risk to long-term reputation
• Nervous savers following instability and uncertainty in the market
• Trade Perspective
• The fallout from Northern Rock
• Savers may be encouraged to split funds between providers
• Changing distribution channels
• Are price-comparison sites positive for the market?
• New entrants to the market
• Retaining and attracting customers in the long-term
• Market Size and Forecast
• Key Points
• Some 31.5 million people own a safe haven savings product
  • Figure 19: Number of savers, by type of account, November 2007
• UK banks account for almost 70% of individual deposits
  • Figure 20: Individual trusts' private sector holdings of sterling assets, 2001-06
• Non-MBBG banks account for growing proportion of the market
  • Figure 21: Individual trusts' private sector holdings of sterling assets, 2001-06
• Strong growth in the number of time accounts
  • Figure 22: Number and value of individual interest-bearing sight accounts and individual interest-bearing time accounts (MGGB only), 2001-05
• Rate of growth in average account balances reflect changing trends
• Customers hold 44.4 million savings accounts with MBBG
  • Figure 23: Number of current and savings accounts held (MBBG only), 2001-06
• Value of deposits in building societies grow sharply
  • Figure 24: Number and value of building society accounts, 2001-06
• Northern Rock crisis leads to surge in amount building society deposits
• ISA sales continue to grow, but average subscriptions fall
  • Figure 25: Number of new mini cash ISAs and amounts subscribed during the year, 1999/2000-2006/07
• Good environment for future market
• More cautious consumer makes impact
  • Figure 26: Trends & forecast for sight & Interest accounts, 2001-12
• Increases in amounts saved fuel future market
• Non- and basic savers more susceptible to bad news
  • Figure 27: Impact of news stories
• Socio-demographics considerations used in forecast
• NS&I Performance
• Key Points
• NS&I investments total £78.9 billion in 2006/07
  • Figure 28: Amounts invested in NS&I annually and total funds held, 2001/02-2006/07
• NS&I improvements heavily dependent on improved distribution
• Premium Bonds' 50th anniversary boosts sales
  • Figure 29: Funds invested annually into different NS&I products, 2001/02-2006/07
• Basic savings account continues to decline in popularity
• Total funds held increase by 7.5% in 2006/07
  • Figure 30: Amount of funds hekd in NS&I accounts, 2001/02-2006/07
• Northern Rock crisis prompts ' flight to safety'
• Back to reality after birthday celebrations
  • Figure 31: Trends & forecast of total NS& I funds invested & held, 2002-12
• Other safe haven products will provide stiff competition
• Older profile will begin to tell
• Market Share
• Key Points
  • Figure 32: Estimated volume share of savings acount market, November 2007
• Nearly seven out of ten savers has an account with a bank
  • Figure 33: Volume share of the savings account market by type of provider, November 2007
• Impact of Northern Rock crisis
• Companies and Products
• Evolution of the savings market
• Market developments in 2007
• Barclays/Woolwich
• Citigroup/Egg
• Nationwide/Portman
• Building societies consolidate through mergers
• Overseas banks maintain pressure over rates
• Product development focuses on segmentation...
• ...and increasing current account penetration
• Company profiles
• National Savings & Investments
• Halifax
• Lloyds TSB
• Barclays
• Nationwide
• Brand Communication and Promotion
• Key Points
• Adspend on savings products totalled £33.7 million in 2006/07
  • Figure 34: Total adverstising expenditure on savings products 2002/03-2006/07
• ING Direct and Lloyds TSB top adspend in 2006/07
  • Figure 35: Top 15 adverstisers of savings accounts, 2006/07
• Most providers reduce adspend on savings products in 2006/07
  • Figure 36: Top 10 advertisers of savings accounts between 2002/03 and 2006/07
• 48% spent on press adspend in 2006/07
  • Figure 37: Advertising expenditure for savings producs, by media type, 2006/07
• Channels to Market
• Key Points
• Online accounts continue to grow in popularity
  • Figure 38: Number of personal customers registered to access their accounts via the telephone or online, 2001-06
• Increase in telephone transactions buoyed by balance enquiries
  • Figure 39: Number of transactions via telephone, by type of query, 2001-06
• Online transactions increase by 913% since 2001
  • Figure 40: Number of transactions via computer, by type of query, 2001-06
• Number of branches declines by 14% since 2001
  • Figure 41: Number of branches, by different provider categories, 2001-06
• Branch is still preferred retail banking channel
  • Figure 42: Channel usage by current account holders, August 2007
• Customer profile differs by channel
  • Figure 43: Key demographic findings relating to channel preference, August 2007
• Advocating a multi-channel approach
• Impact of aggregator sites
• Product Penetration and Account Ownership
• Key Points
• Survey background
• Two-thirds of consumers have safe haven savings products
  • Figure 44: Ownership of savings and investment products, November 2007
• Providers likely to concentrate on retention and switching
• Half of the adult population has an instant access savings account
  • Figure 45: Ownership of savings and investment products, November 2007
• Age influences the likelihood to save
  • Figure 46: Ownership of various types off savings account, by gender, age, lifestage, and working status, November 2007
• Young adults represent largest untapped group
• Savers over 45 demand a greater range of products
• Affluence determines the ability to save
  • Figure 47: Ownership of various types of savings account, by soco-economic group, gross annual household income, household tenure and marital status, November 2007
• Only 5% of ABs holds no savings or investment products
• Savings Gateway Scheme to increase product ownership among DEs
• Internet users are more likely than average to own a savings account
  • Figure 48: Ownership of various types of savings account, by newspaper readership, technology users, Internet usage aand TV region, November 2007
• Demand for Internet savings is increasing
• Profile of saver sophistication
• Around a third of savers are classed as basic or slightly advanced
  • Figure 49: Profile of saver sophistication based on product ownership, by gender, age, socio-economic group, lifestage, marital status and gross annual household income, November 2007
• Product ownership increases with sophistication
  • Figure 50: Profile of saver sophistication by the number of products held, November 2007
• Savings Account Providers and Customer Profiles
• Key Points
• One in five savers has an account with Halifax
  • Figure 51: Top savings account providers, November 2007
• Typical saver profiles differ between top providers
  • Figure 52: profile overview and key demographic findings of savers of top savings institutions, November 2007
• Around six in ten hold a savings account at a traditional bank
  • Figure 53: Savings providers, by category, November 2007
• Building societies and former building societies attract affluent savers
  • Figure 54: Key demographic findings of savers for different provider categories, November 2007
• Notice accounts and cash ISAs most likely to be held at building societies
  • Figure 55: Type of savings account, by different categories of savings provider, November 2007
• Consumer Attitudes Towards Saving
• Key Points
• Half of adults opt for safe haven accounts in face of bad press
  • Figure 56: Agreement with the statement ' Bad press about financial issues tends to make me go for safer accounts' , November 2007
• Savers are sensitive to media reports
• Age is key determinant of likelihood to react to negative financial media
  • Figure 57: Key demographic findings to the statement ' Bad press about financial issues tends to make me go for safer accounts' , November 2007
• Risk takers are the least affected by bad press
  • Figure 58: Agreement with the statement ' Bad press about financial issues tends to make me go for safer accounts' by type of savings/investment products held, November 2007
• Premium Bond holders are the most concerned about bad press
  • Figure 59: Agreement with the statement ' Bad press about financial issues tends to make me go for safer accounts' by type of savings account held, November 2007
• Most sensitive savers use NS&I and most confident use non-traditional providers
  • Figure 60: Agreement with the statement ' Bad press about financial issues tends to make me go for safer accounts' , by the category of savings provider, November 2007
• 25% of adults reassess attitude towards saving after the Northern Rock crisis
  • Figure 61: Agreement with the statement ' The Northern Rock crisis hasn' t made any difference in my attitude towards saving' , November 2007
• Broadsheet readers less impacted by the Northern Rock crisis
  • Figure 62: Key demographic findings to the statement ' The Northern Rock crisis hasn' t made any difference in my attitude towards saving' , November 2007
• People with equity-based products are less likely to be concerned
  • Figure 63: Agreement with the statement ' The Northern Rock crisis hasn' t made any difference in my attitude towards saving' by type of savings/investment products held, November 2007
• Chosen savings institution reflects attitude towards uncertainty
  • Figure 64: Agreement with the statement ' The Northern Rock crisis hasn' t made any difference in my attitude towards saving' by category of savings provider November 2007
• 33% of adults have opened a new savings account in the last two years
  • Figure 65: Agreement with the statement ' I have opened a new savings account within the last couple of years' , November 2007
• 46% of savers have opened a new account in the last two year
  • Figure 66: Agreement with the statement ' I have opened a new savings account within the last couple of years' by savers, November 2007
• A flurry of account opening activity
• Young and affluent most likely to have opened a new savings account
  • Figure 67: Key demographic findings to the statement, ' I have opened a new savings account within the last couple of years' , November 2007
• Sophisticated savers are more likely to have opened new account
  • Figure 68: Agreement with the statement ' I have opened a new savings account within the last couple of years' , by type of savings/investment products held, November 2007
• Savers at former building societies least likely to have opened a new account
  • Figure 69: Agreement with the statement ' I have opened a new savings account within the last couple of years' , by category of savings provider, November 2007
• HSBC and Nationwide customers most likely to have opened a new account
  • Figure 70: Agreement with the statement ' I have opened a new savings account within the last couple of years' , by top savings provider, November 2007
• 31% of savers look for the best available interest rate
  • Figure 71: Consumer attitudes and behaviours towards savings products, November 2007
• Implications and opportunities
• Lack of money limits savings for younger consumers
  • Figure 72: Consumer attitudes and behaviours towards savings products, by gender, age, lifestage, and working status, November 2007
• Savings objectives could provide incentive to save
• Third age savers look for best interest rates and well-know providers
• Cash ISAs preferred over other savings by the affluent
  • Figure 73: Consumer attitudes and behaviours towards savings products, by socio-economic group, gross annual household income, household tenure and marital status, November 2007
• Maximising ISA cross-sale opportunities
• Internet users are more likely to be rate-driven
  • Figure 74: Consumer attitudes and behaviours towards savings products, by newspaper readership, techology users, Internet usage, and TV region, November 2007
• Online savings capability increasing in importance
• Demand for best rates differs between provider categories
  • Figure 75: Consumer attitudes and behaviours towards savings products, by category of savings provider
• Appendix- Account Ownership- Detailed Demographics
  • Figure 79: Top savings account providers, by gender, age, lifestage, working status, November 2007
  • Figure 80: Top savings account providers, by socio-economic group, gross annual household income, household tenure, marital status, November 2007
  • Figure 81: Top savings account providers, by newspaper readership, technology users, Internet usage, TV region and supermarket usage, November 2007
  • Figure 82: Savings providers by category, by gender, age, lifetstage and working status, November 2007
  • Figure 83: Savings providers by category, by socio-economic group, gross annual household income, marital status, household tenure, November 2007
  • Figure 84: Savings providers by category, by newspaper readership, technology users, Internet usage, TV region, and supermarket usage, November 2007
• Appendix - Saving and Investment Targeting Opportunities - Detailed Demographics
  • Figure 94: Savings and Investment product target groups, by gender, age, socio-economic group, lifestage, marital status and gross annual household income, November 2007