In a week where challenger bank Marcus by Goldman Sachs® made headlines by re-entering the easy access savings chart with its Online Savings Account, challenger banks continue to dominate the savings charts. In fact, our research has found that challenger banks offer the highest average rates in both the easy access savings account and fixed rate bond charts, meaning that savers who have stayed with a high street bank may likely be missing out on the best rates.
For example, the average rate being offered by a challenger bank on an easy access saving account was 0.39% AER on the 1 January 2021, this compares to an average rate of just 0.15% AER being offered by high street banks on the same day. This means that a saver who had put £5,000 into a high street savings account, for example, would get an average return of £7.50 per year, whereas those who had put their savings into a challenger bank would get an average of £19.50 per year. Meanwhile, the average rate being offered by building societies on the 1 January 2021 was 0.19% AER, which would result in a saver depositing £5,000 earning £9.50 per year.
Although average rates provide savers with an indication of which types of providers are likely to be offering better rates, savers should look at the easy access savings chart to see what the best rates are available. For example, Nationwide Building Society and Yorkshire Building Society both offer the second best easy access rate of 0.50% AER in the chart today, meanwhile high street bank Virgin Money also offers this rate, as does the challenger bank Marcus by Goldman Sachs®. When looking at best rates, savers should be aware that high street banks and building societies often have added restrictions on either opening the account or withdrawals that challenger banks often may not have. Virgin Money’s Virgin Money Instant Savings account for example is only available to new and existing Virgin Money Current Account customers and Nationwide Building Society’s 1 Year Triple Access Online Saver 10 pays a lower rate if more than three withdrawals are made per annum.
Savers looking to deposit money into a one year fixed rate bond may also, on average, be better off choosing a challenger bank over a high street bank or building society. The average rate being offered by a challenger bank on a one year fixed rate bond on the 1 January 2021 was 0.57% AER, whereas the average rate being offered by high street banks was 0.30% AER and building societies were offering an average rate of 0.48% AER. Using the £5,000 savings example again, this would mean that savers who had chosen a challenger bank would earn on average £28.50, those saving with a high street bank would earn on average £15, and those saving with a building society would earn on average £24.
Again, although challenger banks generally have the highest average rates, savers should look at the chart to see the top rates on offer today. Currently the Sharia bank Al Rayan Bank tops the one year fixed rate bond chart paying an expected profit rate of 0.85% AER on its Fixed Term Deposit Account. The next best one year rate is being offered by the challenger bank Ford Money, which pays 0.70% AER, but savers should be aware that this account is only available to existing customers. Two challenger banks also offer the next best one year fixed bond rate, with both Habib Bank Zurich plc and QIB (UK) paying an expected profit rate of 0.65% AER on their accounts HBZ Sirat eDeposit and 1 Year Fixed Term Deposit respectively. The highest rate being offered in this chart from a high street bank or building society is Tipton & Coseley Building Society which pays 0.55% AER on its Fixed Rate Bond until 31 March 2022, although this account is only available to locals within a small number of postcode areas.
Clearly, savers looking to get the best rates need to consider a challenger bank as they are often paying more competitive rates than both high street banks and building societies. One reason why challenger banks frequently pay higher rates is due to having to attract savers to their, often, less familiar brands by offering top rates. As well as this, many challenger banks also entered the charts to disrupt the market and challenge the establish banks. Another reason is due to the fact that established banks and building societies often do not need the same level of funding as challenger banks, in part due to benefiting from funding for lending schemes that were first introduced after the economic crisis during 2008/09 and which has had a negative impact on savings rates.
Although savers may be wary of depositing their savings with less familiar brands, all the banks and building societies listed in the Moneyfacts.co.uk charts, unless otherwise stated, are protected under the Financial Services Compensation Scheme (FSCS), which protects savings up to a maximum of £85,000 per person under each banking licence. As well as this, challenger banks listed in our charts have full UK banking licenses, which means that they are subject to the same regulations as traditional high street banks.
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.