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Home > Statistics > Explanatory Notes - Effective interest rates
 

Explanatory Notes - Effective interest rates

 

Overview

The effective interest rate is the weighted average of all the interest rates across each type of deposit or loan account held by all the clients within an economic sector. The Bank of England (Bank) calculates average effective rates as weighted averages of the effective interest rates supplied by each of the institutions. 

 

Availability

Data are available monthly from January 2004.  The data are not seasonally adjusted.  Publication of data occurs on the 21st working day of each month on the Interactive Database and in Bankstats table G1.4. The distribution of balances, explained in more detail later on, can be found in Bankstats table G1.5.  See the statistical release calendar (in related links). 

 

Sources

These data are sourced from the Bank's effective interest rates return, Form ER, completed by 19 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% for MFIs' business within 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 the Explanatory Note on revisions.
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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:
 
£150mn                 365
                     x                          x 100    =    3.53%
             
  £50bn                    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 (in related links).

Products
Sight deposits
Sight deposits (instant access deposits, not including ISAs) are interest or non-interest bearing accounts (be it branch based, business, Internet, 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 that on which 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 Internet) 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 an SVR).  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 news 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.
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Valuation and Breaks

The Bank began collecting effective interest rates from a panel of UK resident banks in 1992.  The main purpose then was to meet the needs of the Office for National Statistics in the compilation of 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 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 previously published by the Bank.  Since the ECB begun publishing these data as part of the MIR dataset, the Bank also added these series onto the Interactive Database.
 
Sample expansion – 2004
Although the results have been published in Table G1.4 since February 2001, in January 2004 the Bank 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. 
 
Series Effect of improvements in January 2004 (pp)​ Series Effect of improvements in January 2004 (pp)​
​HSCP 0.20​ HSCW​ -0.10​
HSDM​ ​0.20 ​HSCY ​0.10
​HSCR ​-0.10 ​HSCZ ​0.50
​HSCT ​0.10 ​HSDC ​-0.10
​HSCV ​0.20 ​HSDI ​-0.10
​HSCX ​0.20 ​HSDJ ​-0.20
​HSCQ ​0.20 ​HSDD ​-1.00
​HSDN ​0.20 ​HSDE ​-0.10
​HSCS ​0.10 ​HSDG ​0.30
​HSCU ​0.10
All other series were not materially affected.
 
Incorporating building societies – 2010
In January 2010, the Bank expanded its published data to include data collected from building societies in addition to the data from banks already being 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:
i)    A shift in the level of values in the series; and
ii)   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.
 
Series​ Effect of bringing in building societies in January 2010 (pp)​
​CFMHSCW 0.11​
​CFMBJ66 ​0.13
​CFMBI28 ​0.15
​CFMBJ76 ​0.17
​CFMBI62 ​0.19
​CFMBI63 ​0.16
​CFMBJ74 ​0.27
​CFMBI84 ​0.11
​CFMBI85 ​-0.13
​CFMBI86 ​0.23
​CFMBJ37 ​0.24
All other series were not materially affected.
 
The series for Banks (including Central bank) and Building Societies as counterparties were discontinued and new MFI series were introduced.  To see a table listing the affected series, please see the table below. 
 
Series​ New/discontinued series following the introduction of building societies in January 2010​
​CFMBI28 ​Discontinued from Jan-10
​CFMBI29 ​Discontinued from Jan-10
​CFMB2HW ​Introduced in Jan-10 to replace CFMBI28 AND CFMHSDM
​CFMHSDM ​Discontinued from Jan-10
​CFMBHSDN ​Discontinued from Jan-10
​CFMB2HX ​Introduced in Jan-10 to replace CFMBI29 AND CFMHSDN
​CFMBI57 ​Discontinued from Jan-10
​CFMHSDO ​Discontinued from Jan-10
​CFMB2HY ​Introduced in Jan-10 to replace CFMBI57 and CFMHSDO
 
More information on the changes to the publication of bank and building society statistics can be found in the Bankstats article 'Changes to the publication of bank and building societies statistics' available in key resources (below).
 
Securitisations reporting – 2010
From January 2010 data onwards, all loans that have been securitised by MFIs will be included on the institutions’ balance sheets for statistical reporting purposes.  Some institutions reported securitisations on balance sheet prior to 2010, so their reporting did not change.  However, other institutions brought back on to 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 SPVs see the Bankstats article 'Statistical reporting of securitisations' available in key resources.

Changes implemented following five-yearly review – 2011
Following completion of the five-yearly review of Form ER (announced in February 2010), the variables for which data were collected were optimised so that less detail was available for the public corporations and NPISH 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 have been implemented from January 2011.  The series showing effects greater than 0.1pp can be seen in the table below.
 
Series​ Effect of sample optimisation in January 2011 (pp)​
​CFMHSDD -0.12​
​CFMHSDP ​-0.25
​CFMBJ77 ​-0.20
​CFMBI73 ​-0.21
​CFMBI74 ​-0.18
​CFMBJ93 ​-0.17
​CFMBJ94 ​-0.41
​CFMBJ49 ​-0.68
​CFMBJ52 ​-0.39
 
 
Further information on these changes can be found in the Bankstats article 'Developments in effective and quoted rates statistics' available in key resources.
 
Additional “of which” series – 2012
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.  For a list of the series that were introduced, please see the table below.
 
Series​ Name of new "of which" series​
​CFMB9XX Household stock time deposit rate
Of which fixed rate bonds
​CFMB9XZ Household stock time deposit rate
Of which ISAs
​CFMBX2D Household stock secured floating loan rate
Of which SVR
​CFMBX2E Household stock secured floating loan rate
Of which BRT
​CFMBX2F Household stock secured fixed loan rate
Of which 2 years
​CFMBX2G Household stock secured fixed loan rate
Of which 3 years
​CFMBX2H Household stock secured fixed loan rate
Of which 5 years
​CFMBX2N Household new time deposit rate
Of which fixed rate bonds
 
 
Changes implemented following five-yearly review – 2016
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, available in the February Bankstats publication; these changes are outlined below.
 
Definitional Changes
      I.        Interest bearing balances were redefined from all accounts that bear interest to accounts that are eligible to earn interest.
     II.        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.
    III.        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
      I.        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 3 years’ series and renamed ‘of which 3&4 years’.
     II.        Bridging loans to households were discontinued due to the small balances reported.
 
Changes to sectoral breakdown
      I.        The existing household sector has been split into unincorporated businesses and individuals & individual trusts, to provide a more detailed sectoral breakdown and be consistent with other published statistics relating to lending to individuals.
     II.        Detailed breakdowns of corporate lending previously collected for PNFCs are collected for small & medium sized enterprises (SMEs) only from January 2016.
 
As part of this review, the Bank 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 can be found in the Bankstats article 'Developments in effective rates statistics' available in key resources. The table below lists the affected series.

 

 

​Series New/discontinued series following new Form ER in January 2016​
​CFMZ6I2 Introduced in Jan-2016 to replace CFMB9XX
CFMZ6I3 Introduced in Jan-2016 to replace CFMB9XZ
​CFMZ6IE Introduced in Jan-2016 to replace CFMBX2N
​CFMBI59 Discontinued
​CFMBI62 Discontinued
​CFMBI63 Discontinued
​CFMZ6IR Introduced in Jan-2016 to replace CFMHSDG
​CFMZ6IS Introduced in Jan-2016 to replace CFMHSDP
​CFMBI65 Discontinued
CFMHSDD Discontinued
CFMZ6IX  Introduced in Jan-2016 to replace CFMBX2D
CFMZ6IY  Introduced in Jan-2016 to replace CFMBX2E
CFMZ6J7  Introduced in Jan-2016 to replace CFMBI66
CFMZ6J2 Introduced in Jan-2016 to replace CFMBX2F
CFMZ6J3 Introduced in Jan-2016 to replace CFMBX2G
CFMZ6J4 Introduced in Jan-2016 to replace CFMBX2H
CFMZ6J6  Introduced in Jan-2016 to replace CFMBI67
CFMZ6J5  Introduced in Jan-2016 to replace CFMBI68
CFMBJ85 Discontinued
CFMBJ86 Discontinued
CFMBJ87 Discontinued
CFMBJ88 Discontinued
CFMBJ89 Discontinued
CFMBJ92 Discontinued
CFMBJ42 Discontinued
CFMBJ38 Discontinued
CFMZ6JS  Introduced in Jan-2016 to replace CFMBJ43
CFMZ6JR  Introduced in Jan-2016 to replace CFMBJ44
CFMZ6JQ  Introduced in Jan-2016 to replace CFMBJ45
 

 In addition, as the result of a regular optimisation of the ER sample, changes in population and reporting have been implemented from January 2016. The number of MFIs in the sample has decreased from 22 to 19. No material impact on data quality is expected.

 

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Distribution of balances

 
The distribution of balances from effective interest rates data (Bankstats table G1.5 and IADB) show the percentage share of MFI business by different loan and deposit types, and fixation periods or maturities, for households and PNFCs. 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 in Bankstats, 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.

 

 

Series New/discontinued series following new Form ER in January 2016
CFQB3RV Discontinued
CFQB3RW Discontinued
CFQB3RX Discontinued
CFQBK2I Discontinued
CFQZ6KT  Introduced in Jan-2016 to replace CFQBK2J
CFQZ6KS  Introduced in Jan-2016 to replace CFQBK2K
CFQZ6KR  Introduced in Jan-2016 to replace CFQBK2L
CFQB4VL Discontinued
CFQB4VM Discontinued
CFQB4VN Discontinued
CFQB4VA Discontinued
CFQZ6LC  Introduced in Jan-2016 to replace CFQB4VB
CFQZ6LB  Introduced in Jan-2016 to replace CFQB4VC
CFQZ6LA  Introduced in Jan-2016 to replace CFQB4VD
 

 

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Key Resources

 

Developments in effective rates statistics Johnston, L (2016), Monetary and Financial Statistics, January

Forthcoming improvements to interest rate statistics Murphy, J and Tibrewal, A (2012), Monetary and Financial Statistics, September

Distribution of balances from effective interest rates data Al-Dejaily, M, Murphy, J and Tibrewal, A (2012), Monetary and Financial Statistics, January

Developments in effective and quoted rates statistics Bassi, K (2011), Monetary and Financial Statistics, March

Statistical reporting of securitisations Owladi, J (2010), Monetary and Financial Statistics, February

Changes to the publication of bank and building societies statistics O’Connor, P (2010), Monetary and Financial Statistics, January

​New range of effective interest rates Bailey, J, Reynolds, H and Ryan, M (2005), Monetary and Financial Statistics, May

 

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