Do you still have a savings account with one of the traditional banks or building societies? You could be missing a trick, say savings experts. Remaining loyal to a bank or building society could be costing you a pretty penny.
With the latest inflation figure revealed last week to be 0.1 per cent, you don’t need to get a huge interest on your nest egg to be sure you’re getting a real return not eroded by inflation. But if you’ve left your money languishing in an account at one of the big banks, you’re likely to find that whatever great rate you first signed up to has long since disappeared. Frankly if you haven’t switched accounts recently you may even discover that your account is actually beating inflation with the worst paying a pathetic 0.05 per cent return.
A report from bean-counters at KPMG last month revealed that the UK challenger banking sector is outperforming the Big Five UK high street banks.
“For all challenger banks, the main point of difference is their culture,” said Warren Mead at KPMG. “Being largely free of the legacy problems of the past contributes to a sense of social purpose that puts fire in the bellies of their executives and frontline staff alike.”
That fire translates into them being fiercely competitive and keen to attract new customers. And that means savers can win with much better interest rates.
Simon Healy of Aldermore Bank says: “If savers want to get the best rate, then they need to shop around. Staying loyal to some of the high street banks could unfortunately prove costly in the long run.”
Anna Bowes of SavingsChampion.co.uk certainly thinks you could be better off by moving your nest-egg to one of the newer challenger banks.
“Challenger banks have dominated the best buy tables and changed the savings landscape in recent years and that trend looks set to continue,” she says. “With nine out of 10 of the top fixed rates offered by challenger banks, savers would be wise to look to this new breed of provider.”
Charlotte Nelson, of Moneyfacts.co.uk, agrees: “It’s shocking that some of the UK’s most well-known brands can pay a miserly 0.05 per cent on an easy access account. Indeed, the average easy access account from high street providers is just 0.63 per cent, but challenger banks offer a much better rate of 1.02 per cent.”
Some 22 out of 25 best buy fixed rate bonds are now offered by challenger banks, SavingsChampion points out. On Friday Vanquis Bank, for instance, increased some of its savings rates to leave it included in the top 5 best buys across 1 to 5 year terms.
The move was followed by Charter Savings Bank which increased the rate on its 1 year fixed rate bond to 2 per cent to match the market-leading rate from Punjab National Bank.
Shawbrook Bank also made its 2 year fixed rate bond and fixed rate Isa more competitive pushing the Isa into become a joint best buy. Meanwhile United Trust Bank launched an 18 month bond paying 2 per cent.
“For savers relying on the high street, the difference is stark and getting it wrong can cost you dearly,” warns Anna Bowes. For instance Lloyds Bank offers a paltry 1.2 per cent on a three year fixed deal which is 50 per cent less than the very best from a challenger bank.
Charlotte Nelson advises savers to fight back and vote with their feet, moving away from traditional banks. “Many of the brands in today’s best buys are new to the market and are relatively unknown, but they provide savers with the best chance of achieving a market-leading rate,” she said.
Who are the challengers?
According to the KPMG report there are four main different types of banks now.
‘Big 5’ banks: Barclays, HSBC, Lloyds, Royal Bank of Scotland (RBS) and Santander.
Large Challengers: Post Office (financial services are provided by Bank of Ireland UK), National Australia Bank (NAB), TSB and Virgin Money.
Small Challengers: Aldermore Group, Handelsbanken, Metro Bank, OneSavings Bank, Shawbrook Group and Secure Trust Bank.
Retailer-owned banks: Asda Money, M&S Bank, Tesco Bank and Sainsbury’s Bank.
But there are also a range of savings institutions challenging the high street giants with best-buy deals such as Vanquis Bank, Charter Savings Bank, Punjab National Bank, United Trust Bank.