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The point 99 syndrome - a nice little earner for Banks and Building Societies

Banks and building societies are taking a leaf out of supermarkets' books to increase their profits at the expense of some consumers' limited ability to process numbers, according to new research.

The research comes from the Universities of East Anglia and Leeds working with

Dr John Ashton of the ESRC Centre for Competition Policy at the University of East Anglia and Dr Robert Hudson of Leeds University Business School, using data from, found that interest rates for a disproportionate number of UK mortgages end in .99, rather than a whole figure, which is used far more for deposit accounts.

"It's the same practice that supermarkets apply when they offer a product at £1.99 instead of £2. Many of us will - consciously or not - round that figure down and think we are getting something cheaper," said Dr Ashton.

The research undertaken identifies that this is a widespread practice in the UK deposit and mortgage markets and suggests that this practice is consistent with banks attempting to gain the greatest profits from consumers with the least ability to process price and number information.

The researchers firstly produced a model, which demonstrates which particular digits maximise profits for banks when customers round and truncate interest rates - actions many customers use to help them remember and recall number information. The model predicts that banks maximise their profits from mortgages by setting interest rates just below whole numbers (integers) or other reference points, for example, at 3.99% instead of 4% or 4.95% instead of 5%. For deposit accounts, banks maximise their profits by setting interest rates at whole numbers and reference points such as half or quarter points, for example at 4%, 4.5% or 4.75%.

Secondly the study, using data provided by, on the UK mortgage and deposits markets over a 12 year period (1993-2004), quantifies the degree of clustering of digits in interest rates set in these markets. It is reported that well over three quarters of all firms providing deposits set interest rates in a manner consistent with maximising profits from customers who tend to round figures up or down.

Indeed from assessing interest rates from over 1,294 deposit products issued by 176 firms, the majority of interest rates recorded are integers, half points or at quarters (e.g. 5.00%, 5.50% or 5.25%). The degree of digit clustering at integers, half points and quarters is substantially greater in interest rates for smaller deposits, than for larger deposits. Further, this is a practice which is most commonly used when customers have smaller quantities to invest.

The level of clustering in mortgage markets at points just below integers, half points and quarters also occurs in just under half of all institutional mortgage interest rates recorded over the 12-year period.

Considering the implications of the research for customers, Dr Robert Hudson from Leeds University Business School reported "Perhaps the most surprising and worrying aspect of our research has been the setting of interest rates in a manner which takes advantage of those with the least to invest. It is clear that 'clustered pricing effects' occur most for smaller savers, and those with the most to lose from this practice."

For further information: 

Please contact the University of Leeds Press Office on +44 (0)113 343 4031 or email

Notes for Editors:

a) The study is part of the on-going research programme into issues of pricing and competition in banking markets undertaken by Dr John K Ashton (Norwich Business School and the ESRC Centre for Competition Policy) and Dr Robert Hudson (Leeds University Business School).

b) This work is published in a working paper format, the ESRC Centre for Competition Policy Working paper Series. The full working paper (CCP Working Paper 06-14) and more information about CCP and its research is available from our website:

c) The ESRC Centre for Competition Policy (CCP) at the University of East Anglia (UEA) is the leading UK centre for research into Competition Policy. Its members undertake high quality, independent, academic research into competition and regulation and its impact on companies and society.

d) Leeds University Business School (LUBS) is highly rated for international excellence in research, including in banking and financial services. In the Financial Times (2006), LUBS was ranked 2nd in the UK, 3rd in Europe, for the quality of its research. It is ranked in the top 40 of the world's leading business schools by The Economist Intelligence Unit ('Which MBA?' 2006).

e) Moneyfacts is the UK's leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

f) The Norwich Business School at the University of East Anglia is a fast growing school specialising in the areas of marketing, accounting and finance, regulation and business management. The school's approach is based on the principles of research excellence combined with research-led teaching and close collaborative partnerships with the industry.

Disclaimer: The information contained in this press release does not constitute financial advice and the authors shall not be liable for any loss or damage howsoever arising as a result of any person acting or refraining from acting in reliance on any information contained herein.

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