The challengers paying 20x more interest than the banking giants
In fact, savers sticking to the banking behemoths could be missing out on interest to the tune of £250 a year (on a £20,000 deposit), according to research.
While savers may not be familiar with a host of challenger banks, overlooking them could mean missing out on up to 1.30% on an easy access account versus the miserly from 0.05% offered by banks dominating the high streets.
Rachel Springall, finance expert at Moneyfacts, the group behind the research, said in spite of a positive change in the savings market over the past six months, the biggest high street banks have refrained from offering competitive deals and fall far short of the best buys.
“In fact, every easy access account from the big banks pays less than the base rate, at 0.50%.
“Savers are paying for the convenience of keeping their cash with their main bank, rather than chasing down the best possible deal for flexible access to their savings. HSBC currently pays 0.05% on an easy access account, which would earn just £10 a year in interest on a £20,000 deposit. It remains the case that the more unfamiliar brands, such as challenger banks, are fighting for savers’ attention by offering some decent deals. In comparison to HSBC’s account, RCI Bank UK would return £260 on the same deposit.”
Springall added that while savers were pinning their hopes on a base rate rise next month, a slowdown in economic growth is likely to keep rates at their current level.
“Even so, as we have seen in November, there is no guarantee that every savings provider will pass on a rate rise. In fact, some of the biggest banks were very selective about which accounts got the full 0.25% rise in November. HSBC increased their standard flexible saver, which paid 0.01%, by a measly 0.04% after the base rate rise.
“As the savings market continues to improve away from the big banks, it’s more important than ever for consumers to be on the lookout for a better rate, and more importantly, switch if they are getting a raw deal.”
How safe are your savings with the challengers?
A number of the challengers are British such as Virgin Money, Sainsbury’s and Kent Reliance. Others are foreign-owned such as RCI Bank which is French (RCI Banque). Confusingly, the Bank of Cyprus UK actually has a UK banking licence and deposits have been protected since 2012.
Savers should always check whether their money is protected by the Financial Services Compensation Scheme (FSCS). The FSCS guarantees to repay up to £85,000 per person within seven days if a bank, building society or credit union goes bust.
However, RCI Bank comes under the French-equivalent of the FSCS, protecting savers on deposits up to €100,000, so British savers would get the sterling equivalent.
An important point to note is that the sterling equivalent is based on the prevailing exchange rate and is subject to fees such as for transferring the funds into sterling.
Any deposits above £85,000 or €100,000 in the same institution are unlikely to be protected.
See YourMoney.com’s ‘Should I entrust foreign banks with my savings?’ for more information.