Have you taken a look at our best buy charts recently? If so, you've probably noticed the lack of big names. Challenger banks are definitely taking over, particularly in terms of savings rates, so it could be time for you to consider the alternatives.
Many of the biggest high street banks – think Barclays, Halifax, HSBC, Lloyds Bank, Nationwide, NatWest, RBS and Santander – offer pitifully low savings rates, with there being little motivation for them to compete. Analysis suggests that this is the result of the Funding for Lending Scheme, launched by the Government in 2012 to offer banks access to cheap funding that they could lend out in the form of mortgages.
This meant banks had no need for savers' cash to boost their funding reserves, so savings rates fell – quickly. However, challenger banks didn't take part in the scheme, and when you consider that many have popped up in the last couple of years, it's no wonder they're offering much higher rates.
"High street providers have been steadily deserting the savings best buys charts, being consistently out of the tables for the last two years," said Charlotte Nelson, finance expert at Moneyfacts.co.uk. "Unfortunately they don't seem to be particularly worried about this, using savers' reluctance to change providers to their advantage – with savers unwilling to move accounts, poor rates and the dominance of the big banks in the savings market will remain."
Moneyfacts' figures show that the average easy access account from high street providers is just 0.63%, but challenger banks offer a much better rate of 1.02%. This stark difference is further highlighted when looking at the best deals available – the top paying two-year fixed rate bond is currently from the lesser-known Al Rayan Bank, paying 2.30%, whereas Lloyds Bank offers just 1.05%.
That's a massive 1.25% less, so why put up with it?! Don't stay put out of habit, loyalty or apathy – it's time to vote with your feet. "Savers need to fight back and move away from traditional banks to the new challenger brands out there," added Charlotte. "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.
"It is understandable that many are wary of the newer savings providers, but if they are protected by the Financial Service Compensation Scheme, then there is little reason for nerves. Perhaps if savers started to look elsewhere, this may act as a catalyst for high street providers to offer better returns, too."
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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