Banks pocket cheap money

Tim Bennett rounds up this week’s personal finance news, including why the banks' Funding for Lending Scheme isn't working, and where savers can find a 5% interest rate.

Are our banks playing fair on the Funding for Lending scheme? It's not looking good so far, says Rachel Rickard Straus on According to the latest data, net lending by banks and building societies has fallen by £1.5bn in the six months since the scheme launched, despite borrowing via the scheme (which gives banks access to cheap funds) coming in at £13.8bn.

One of the worst culprits, Santander, has cut lending by £6.3bn despite drawing down £1bn. Given savers are being hammered with lower interest rates on their deposits, you have to wonder where all this new money is going. The answer appears to be into bolstering banks' balance sheets and keeping salary and bonus cheques flowing.

Tesco has given consumers something to cheer about this week. It seems the supermarket wants to take on online retailer Amazon on its own turf. According to The Daily Telegraph's Katherine Rushton, Tesco plans to launch two specialist ebook and music retail websites later this year, having just pinched Gavin Sathianathan, Facebook's head of retail for Europe, the Middle East and Africa.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Meanwhile, its 80% share in film and TV site Blinkbox puts it directly in competition with Amazon's LoveFilm offering. More competition in the market suggests that we can hope for cheaper entertainment in future, at least.

Hard-pressed savers could take a look at Nationwide's FlexDirect current account. It pays 5% on a maximum deposit of £2,500, provided you pay at least £1,000 per month into the account. As always seems to be the case these days, the deal lasts just a year, after which you will be back down to earning 1% and on the hunt for another offer.

The payment protection insurance (PPI) misselling scandal continues to throw up bigger and scarier numbers, says The Guardian's Hilary Osborne. As the biggest banks report year-end results, they continue to boost provisions against claims arising from the 34 million PPI policies sold since 2001. The estimated total now set aside is £14bn. The biggest provision of £6.7bn was recorded by Lloyds TSB.

The Investment Management Association is changing the label for funds that claim to beat a benchmark and generate positive returns in all conditions from "absolute return" to "targeted absolute return" funds, says Richard Evans in The Daily Telegraph. But our advice hasn't changed: be wary. These funds can be complex and expensive. Take a good look before you buy one.

Don't wait too long to reclaim overpaid tax from HMRC, says Lucy Warwick-Ching in the Financial Times. In the past, taxpayers had six years to reclaim it, but last April this was cut to four. Anyone hoping to claim back tax for the year 2008/2009 must act before 5 April 2013. Typical reasons for a reclaim include failing to claim gift relief on charitable contributions first time round, claiming too little personal pension relief, or having the wrong personal allowance applied.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.