Further details about effective interest rates data

Overview

We calculate average effective rates as weighted averages of the effective interest rates supplied by each institution.

Availability

Data are available monthly from January 1999. The data are not seasonally adjusted. We publish data on the twenty-first working day of each month in UK MFIs' (excluding central bank) effective interest rates (Table G1.4). The distribution of balances, explained in more detail later on, can be found in UK MFIs' (excluding central bank) distribution of balances within effective interest rates (G1.5). See News and Events.

Sources of this data

These data are sourced from the Bank's effective interest rates return, Form ER, which is completed by 26 monetary financial institutions (MFIs). The sample is reviewed regularly to ensure that it remains representative of MFIs’ lending to and deposits from UK-resident individuals and organisations, and that it provides coverage of at least 75% of MFIs' business in each of the main sectors of the economy.

The reporting institutions are selected from a population of around 350 UK-resident MFIs using stratified sampling techniques, where each stratum represents an economic sector or product type. To achieve the 75% target with the fewest reporters – and thus limit the cost burden on the banking industry – the largest institutions by market share are selected within each stratum.

For each of the sectors and instruments specified on Form ER, the effective interest rate is the average over all types of loans or deposits, over all types of customers and risks and over business in that month. It is therefore not possible to identify an individual reporting institution’s actual interest rate that they pay or charge for a particular product, or even the ‘average’ rate for a reporting institution.

All data are subject to revision if and when new information becomes available. For more information on revisions practices see further details about revisions.

Definitions

Effective rate calculation: definitions of these calculations can be found in the ER definitions. Effective rates are calculated as a function of average loan/deposit balances and interest payable/receivable on those balances

Stock effective rates are calculated as follows:

  Interest flow           No. of days in year
                           x                                            x 100
            
  Average (daily)          No. of days in 
     balance                        month

For example, if, during January (in a non-leap year), a bank on average held £50 billion of household savings deposits, on which interest totalling £150 million was payable, the effective interest rate would be:

£150 million             365
                     x                         x 100    =    3.53%
             
  £50 billion               31                      

The deposits might be held in millions of separate accounts with numerous different terms and interest rates, none of which might actually be 3.53%.

New effective rates can be calculated in either of the following ways:

i)  Interest flow*          No. of days in year
                            x                                            x 100
           
   Average (daily)             No. of days in
       balance**                        month

* Interest flow = sum of the one-day interest accruals recorded for all new business.

** Average (daily) balance = sum of all new business/number of days in the month.

Or ii) ∑ [each new deposit (loan) amount x annualised interest rate for each deposit (loan)]

                                Sum of new deposits (loans) during the month

Sectorisation

General sector definitions can be found in the sector categories.

Products

Sight deposits

Sight deposits (instant access deposits, not including ISAs) are interest or non-interest bearing accounts (be it branch-based, business, online, telephone or postal accounts) where the depositor has access to the entire balance of the deposit, without incurring any penalty, either on demand or by close of business the day following that on which the deposit was made.

Time deposits

Time deposits are interest-bearing deposits that are not classified as sight deposits. These are deposits where only part of the balance is accessible without penalty, either on demand or by close of business on the day following the one when the deposit was made. Postal deposit accounts (excluding those with alternative instant access arrangements such as via ATMs or immediate transfer to a sight account e.g. by telephone or online) are also classified as time deposits. This is due to the postal element resulting in a delay in the customer using the money even if the reporting institution responds to their request by return post.

All cash ISAs are also classified as time deposits, consistent with their balance sheet treatment due to the tax implications of withdrawing. Thus, cash ISAs which allow immediate access to capital are also classified as time deposits, despite instant access to the balance.

Loans secured on dwellings

These include all mortgage loans to individuals secured on properties. Loans for home improvements, house repairs and maintenance also secured by a first charge over the property, and mortgage sub participations fully and specifically secured against residential mortgage loans are also included.

Remortgages are new business, but automatic changes in product are not (for example when a fixed-rate mortgage automatically transfers to a standard variable rate). But if the borrower consciously transfers to a new product, even with the same provider, this should be classified as new business. Ported mortgages should not be classified as new business unless additional funds are drawn down. In this case, only the additional funds should be classified as new business. This differs to the IS form definitions where all ported mortgages are to be treated as new business.

This average rate also includes some preferential rate loans such as staff mortgages, but these only account for a very small proportion of the total.

Valuation and breaks

We began collecting effective interest rates from a panel of UK resident banks in 1992. The main purpose then was to meet the Office for National Statistics’ needs for compiling the national accounts. During the 1990s, demand from monetary policy users grew, for example in monitoring the impact of changes in the official interest rate, the Bank Rate. The survey became monthly in 1998 and was made statutory under the Bank of England Act in 2000.

The Bank provides UK monetary financial institution (MFI) data to the European Central Bank (ECB) to form part of the MFI interest rate dataset. The ECB requires different product breakdowns to those we previously published. Since the ECB begun publishing these data as part of the MIR dataset, we have added these series onto the Bank of England Database.

2004 sample expansion

Although the results have been published in UK MFIs' (excluding central bank) effective interest rates (Table G1.4) since February 2001, in January 2004 we introduced an expanded survey form to meet users’ needs for more detailed information. Due to the new form, the sample of reporters was expanded in January 2004, and improved calculation methodology adopted by reporting banks. As a result, there was a shift in the level of values in the series. This means that direct comparisons between December 2003 and January 2004 cannot always be made. For estimated effects of the improvements made in January 2004, to the series starting in 1999, please see the table below:

No other series were materially affected.

2010: incorporating building societies

In January 2010, we expanded our published data to include data collected from building societies in addition to the data from banks we already collected and published. Therefore, from January 2010, the published data are combined bank and building society rates for all series instead of a bank-only rate.

There were two consequences as a result of this change:

1. A shift in the level of values in the series.
2. A discontinuation of six old series and the introduction of three new series.

The level shifts in the materially affected series of rates can be seen here.

No other series were materially affected.

The series for banks (including central banks) and building societies as counterparties were discontinued and new monetary financial institution series were introduced. The following table lists the affected series:

More information on the changes to publishing bank and building society statistics is available in the Statistics article 'Changes to the publication of bank and building societies statistics'.

2010: securitisations reporting

Since January 2010, all loans that have been securitised by monetary financial institutions will be included on the institutions’ balance sheets for statistical reporting purposes. Some institutions reported securitisations on balance sheet before 2010, so their reporting did not change. However, other institutions brought back onto their balance sheets loans that had been securitised in the past.

This caused a level shift in various balance sheet series in January 2010. However there was little effect on the published effective rates with the exception of CMFBI65 (stock household loans secured on dwellings, fixed <=1yr) which increased by approximately 25bps.

For further information on the treatment of special purpose vehicles, see the Statistics article 'Statistical reporting of securitisations'.

2011: changes implemented following five-yearly review

Following the five-yearly review of Form ER (announced in February 2010), we optimised the variables for which data were collected so that less detail was available for the public corporations and non-profit institutions serving households sectors, and more detail was collected for household deposits and secured lending. On the corporate lending side, short-term loans (less than 30 days) were excluded from new lending rates, and intra-group business has been excluded from all areas.

In addition, as the result of a regular optimisation of the ER sample, changes in population and reporting were implemented in January 2011. The series showing effects greater than 0.1pp can be seen in the following table:

Further information on these changes is available in the Statistics article 'Developments in effective and quoted rates statistics'.

2012: additional series added

Following a review of the popularity of specific products within deposit and loan markets, with effect from October 2012, several new ‘of which’ series were published for household time deposits and secured loans. These series have data starting from January 2011. 

The following table lists the series that were introduced:

2016: changes implemented following five-yearly review

Following the five-yearly review of Form ER (announced in January 2015), several changes came into effect with the publication of January 2016 data. These changes are outlined below.

Definitional changes

1. Interest bearing balances were redefined from all accounts that bear interest to accounts that are eligible to earn interest.
2. Floating interest rates on all lending were redefined from a rate that can change at any time to an interest rate linked to a reference rate.
3. Guaranteed equity bonds (GEBs), which pay a return based on the performance of the stock market, were removed from time deposits.

Changes to existing published series

1. Fixed-rate lending to individuals with initial fixation of less than one year was removed. Business in this category was incorporated within lending with initial fixation of up to two years. Similarly, fixed-rate lending to individuals with initial fixation of four years was combined with the existing ‘of which three years’ series and renamed ‘of which three and four years’.
2. Bridging loans to households were discontinued due to the small balances reported.

Changes to sectoral breakdown

1. The existing household sector has been split into unincorporated businesses and individuals and individual trusts, to provide a more detailed sectoral breakdown and be consistent with other published statistics relating to lending to individuals.
2. Detailed breakdowns of corporate lending previously collected for private non-financial corporations are collected for small and medium sized enterprises (SMEs) only from January 2016.

As part of this review, we will start to collect a more detailed breakdown of individuals and individual trusts’ fixed-rate bonds, new business ISAs, credit card by usage and overdrafts, as well as on SME lending. The Bank will monitor the reliability of these new data during 2016, ahead of an announcement of future publication.

Further information on these changes is available in the Statistics article 'Developments in effective rates statistics'. The following table lists the affected series:

In addition, as the result of a regular optimisation of the ER sample, changes in population and reporting were implemented from January 2016. The number of monetary financial institutions in the sample decreased from 22 to 19.

Distribution of balances

The distribution of balances from effective interest rates data (from UK MFIs' (excluding central bank) distribution of balances within effective interest rates (Table G1.5) and the Database show the percentage share of monetary financial institution (MFI) business by different loan and deposit types, and fixation periods or maturities, for households and private non-financial corporations. These data are based on balances from Form ER, on a quarterly basis from the first quarter of 2004.

In contrast to the MFI sector balance sheet statistics published elsewhere, the effective rates balances relate to average balances during the month rather than end of month positions; and the population is the ER reporting sample, rather than the entire MFI sector.

Following completion of the five-yearly review of Form ER (announced in January 2015), several changes came into effect with the publication of January 2016 data. The table below lists the affected series in the distribution of balances from effective interest rates data.

Further information

Developments in effective rates statistics Johnston, L (2016), Statistics article, January
Forthcoming improvements to interest rate statistics Murphy, J and Tibrewal, A (2012), Statistics article, September
Distribution of balances from effective interest rates data Al-Dejaily, M, Murphy, J and Tibrewal, A (2012), Statistics article, January
Developments in effective and quoted rates statistics Bassi, K (2011), Statistics article, March
Statistical reporting of securitisations Owladi, J (2010), Statistics article, February
Changes to the publication of bank and building societies statistics O’Connor, P (2010), Statistics article, January
New range of effective interest rates Bailey, J, Reynolds, H and Ryan, M (2005), Statistics article, May