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The slash of interest rates on savings accounts at commercial banks in Barbados continues, with one financial institution introducing a rate so low, it means someone with a minimum $100 in a deposit account would only attract one cent in interest.
Even as customers of CIBC First Caribbean were adjusting to interest rates between 0.05 and 0.15, which took effect at the start of the month, the Royal Bank of Canada (RBC) has served notice that it will only be offering 0.01 per cent on savings from March 1.
The RBC changes will affect customers with RBC’s Day to Day Savings, Enhanced Savings, Leo Young Savers and SixtyPlus accounts.
Bank customers were previously guaranteed a 2.5 percent interest rate on savings prior to April 2015 when the Central Bank removed the minimum savings rate.
Last August, Finance Minister Chris Sinckler announced an increase in the Bank Asset Tax from from 0.2 percent to 0.35 per cent, saying that the move was intended to pressure banks to deliver more to customers, whom he said benefited little from the Central Bank’s removal of the minimum interest rate.
Economists had warned then that banks were not in the business of absorbing taxes and the measure would be passed on to consumers.
On the heels of the latest development, former head of the Barbados Bankers’ Association Horace Cobham told the Barbados Today online newspaper that the Central Bank must take a second look at the minimum savings rate, lamenting that it was not in the interest of customers.
While acknowledging that banks were trying to cope with current instability in the market, he insisted that customers deserved a better deal.
“Perhaps there is need for some half-way house, where there is some minimum rate of return,” Cobham said.
Cobham also made the case for better policing of the banking sector which, he said, often had to be forced to do the right thing in small economies.
“That is why . . . you need a successful domestic bank or regional bank in every society, because [they] see their market as the market in which they operate, whereas international banks always have a foot in the door and one outside; meaning, when they are looking at an investment they compare making the investment in Barbados versus making the investment in wherever,” he explained.
The former banker also rejected claims from commercial banks that lending rates were coming down at the same pace as those which apply to savings, saying, “they have lowered lending rates, but not to the same extent they have lowered deposit rates. So their [profit] margins have increased.”