Recognise Bank entered the personal savings account market this week with the launch of its chart-topping 2% AER five year fixed rate bond. Not only is more competition within the savings charts providing more choice for savers, but entering the chart with a top rate will hopefully help to continue the trend of rising rates on fixed accounts.
Despite offering the best rate in the savings chart, some savers may be reluctant to deposit funds into a savings account from an unfamiliar ‘challenger’ bank, but research carried out by Moneyfacts.co.uk has found that savers looking to get the best rate will have to opt for a challenger bank which is unlikely to be a household name.
Savers looking for a fixed rate account, for example, will find that the top rates in the fixed rate bond charts, from one year to five year terms, are all from challenger banks. Data published in the September 2021 Moneyfacts Savings Treasury Report shows that in the one year fixed rate chart, 65 accounts came from challenger banks with the average rate standing at 0.94% AER; meanwhile, just 17 came from high street banks and the average rate was 0.20% AER. Meanwhile, in the five year fixed chart, challenger banks offered 25 accounts at an average rate of 1.42%, whereas high street banks offered just two at an average rate of 0.50%. Building societies were more competitive offering 33 one year fixed accounts at an average rate of 0.49% and 23 five year fixed accounts at an average rate of 1.08%, however, building societies often have opening restrictions on their accounts with many only being available to existing customers or those who live within specific areas.
A high number of savers, however, are opting for easy access savings accounts over fixed accounts as they want the flexibility of making further deposits and being able to access their savings. Again, in the easy access savings chart, those with a high street account are likely missing out on the best rates and may be better off switching to a challenger bank or building society. Challenger banks are slightly less competitive in the easy access savings charts with the number of deals they offer, but overall they continue to offer the highest rates on average. For example, analysis during September found that 22 easy access accounts came from challenger banks with an average rate of 0.39% AER, while 188 came from building societies but the average rate was significantly lower standing at 0.19% AER. Meanwhile, high street banks offered 37 deals at an average rate of just 0.08% AER.
Visit our fixed rate bond chart here to compare all the best fixed accounts.
It is clear that savers looking to get the best savings rates will need to consider a challenger bank. Although many challenger banks are not household names and are not as well established as familiar high street banks such as Lloyds, Barclays or HSBC, all the banks listed in our charts are authorised by the Prudential Regulation Authority so are fully covered by the Financial Services Compensation Scheme (FSCS). This means that savers money is protected as equally in a challenger banks as a high street bank.
Challenger banks originally started entering the UK market after the 2008 economic crisis and had the aim of ‘challenging’ the existing consumer banking market. Some of the more mature challenger banks, such as first direct, are more familiar to consumers, while others such as Ford Money, are part of brands that were already household names. Looking at the savings charts, however, and many of the top rates come from less familiar brands which are new to the market, Sharia’a banks or part of a savings platform.
Sharia’a accounts often top the fixed rate bonds charts and these banks include Bank of London and The Middle East (BLME), Gatehouse Bank and Al Rayan Bank. These banks operate under Islamic financial principles, which means that they cannot pay interest on deposits but instead pay an expected profit rate. Although these banks operate under Islamic principles the accounts are open to all consumers and they are regulated the same as other UK banks. More information about Sharia’a banks can be found here.
Savers looking at our fixed rate bond charts will also notice that a number of accounts offering competitive rates do so through Raisin UK. Raisin UK is a savings platform bringing together selected savings accounts from many banks and building societies into one place, making it easier for savers to manage savings in various accounts. Money deposited into the accounts will be under the protection scheme of the individual bank. Raisin UK, for example, states that not only is it fully authorised and regulated by the Financial Conduct Authority (FCA) but also only works with banks that are protected by the FSCS or European equivalent. Saying this, savers need to ensure that they do not deposit more than the maximum limit of £85,000 with banks under the same banking licence. For more information about these platforms read our guide on savings platforms.
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