It’s not much fun being a saver at the moment, what with rates failing to keep pace with inflation. But apparently there are more savings accounts now on offer since November 2012. And all this is down to a new breed of banks entering the market – the challenger banks.
This all sounds a bit pugilistic to me, but there are positives about this. You just need to feel the fear and go with it. Firstly, banks which offer accounts on the UK mainland will be usually be covered by the same level of protection as the big high street names such as Barclays and Lloyds. This is provided by the Financial Services Compensation Scheme and basically means your deposits up to £85,000 per person are covered (more details here and check if your bank is covered here) If an EU bank isn’t, it might mean they are covered by an equivalent compensation scheme (called ‘passporting’): this should be spelt out on their website.
Challenger banks can offer better rates than the big high street ones partly because the big banks don’t need to rely so much on savers to finance their mortgage lending. Challenger names which are competing for savers’ money (and which are covered by the FSCS) include Aldermore, Atom, Shawbrook, OakNorth and Wyelands (there’s a list here). There are also well-known names such as Ford Money (part of the car giant) and the supermarket banks too.
If you take a look at the best buy tables available online (we remain loyal to those compiled by our former employer the Daily Mail here) you will see they are filled with unusual names. They are particularly good at fixed rates - Al Rayan is paying 2.22% fixed for two years and Atom 2.05% for the same period. The nearest traditional providers can get to that is 1.41% from the Post Office.
The challenger banks are also at the forefront of new developments. Atom and Monzo are both app-based banks which will soon offer current accounts you can run from your smartphone. Revolut (whose card Jane is fond of using abroad) has a prepaid card and a current account it says you can open in three minutes. I do feel positively medieval with my Big Four current account and cheque book. I think I need to take up the challenge of these new banks and open a savings account (and see our guide to savings here). Frankly having a current account only based on my phone is just a bit too futuristic for me.
See our SMM guide to savings here