The ice men can melt savers' hearts. But will their rates stay faithful?
Foreign providers have burnt British fingers before. The Viking invasion should be different, finds Kate Hughes
Sunday 03 February 2008
Forget cod, Bjork and the Vikings, the latest exports from Iceland to grace our shores are their marauding banks – armed, luckily, with some highly competitive savings products.
The most recent newcomer, Kaupthing Edge, landed here last week with an account offering 6.5 per cent interest, instant access and a guarantee to pay 0.3 per cent above the Bank of England base rate for the next five years.
The invaders come in peace – though UK rivals might argue – and their deals, frequently topping the "best buy" savings tables, do tend to be as competitive as they seem.
"These products really are good," says Lisa Taylor of comparison service Moneyfacts. "Along with the new entrant, Icesave's instant access savings account offers 6.3 per cent, is easy to understand and has few conditions. They do not have the same cost base as the big UK banks, which are finding it very difficult to compete."
HSBC, for example, comes close to the rates of Landsbanki, Kaupthing Edge and others, but only if consumers don't take any withdrawals.
What the ice men do next, however, is crucial. Consumers have been burnt before by foreign banks bearing gifts.
For example, the Dutch- owned ING Direct came to the UK offering a bumper instant access rate and attracting a huge inflow of cash deposits – only for rates to be allowed to wilt.
In the case of Kaupthing Edge, though, Kevin Mountford of comparison site Moneysupermarket.com is confident of the new entrant's staying power. "Customers wondering whether their cash will be safe and how rates will fare once Kaupthing has gained a foothold should be happy. Based on its track record in Europe, it should remain competitive.
"The Icelandic banks are entering the market with few products, so their pricing is clear and all the consumer has to do is monitor it."
It isn't just Europeans who are cashing in on our market. Indian bank ICICI, whose HiSave easy-access account offers 6.41 per cent, continues to top the savings charts, and Nigeria's FBN Bank is responsible for another easy-access product that matches the Kaupthing Edge offer.
But after stories of scandals in overseas call centres, consumers would be entitled to ask if money held with a foreign bank is safe.
On the surface, the answer has to be yes. Overseas-based providers are subject to the same Financial Services Authority regulations on deposit security, while their customers are protected by the Financial Services Compensation Scheme for 100 per cent of the first £35,000 worth of deposits, under the same rules as the domestic market. And almost every international bank has signed the British Banking Code, which is voluntary but sets out best practice for how banks treat their customers.
It is also worth remembering that the line is blurring between UK and overseas financial companies, with household names like Abbey owned by foreign institutions.
But if consumers are still uncertain about the safety of their money, Mr Mountford says they could spread the risk across a number of accounts, as they should in case of risk in any market.
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