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Derin Clark

Derin Clark

Online Reporter
Published: 20/06/2019
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Challenger bank savings rates beat the high street

Savers looking to put their money into a fixed-rate bond will get better rates by choosing a challenger bank rather than a traditional high street bank, recent data from Moneyfacts UK Savings Trend Report reveals.

The report found significant differences in rates being offered by high street banks, building societies and challenger banks, with challenger banks offering an average of 0.95% more than high street banks on five-year bonds. High street banks on average offer 1.50% on a five-year bond (based on a 10,000 investment), building societies an average of 1.97% and challenger banks 2.45%. This means that savers looking to get the best rates would be wise to look beyond the traditional high street banks and building societies and instead consider challenger banks.  

Average fixed bond rates, June 2019, by provider 

  High street banks Building societies Challenger banks
One-year fixed bond 1.04% 1.31% 1.88%
Three-year fixed bond 1.38% 1.70% 2.26%
Five-year fixed bond 1.50% 1.97% 2.45%


What are challenger banks?

Challenger banks are normally smaller, recently launched banks that aim to challenge the dominance of well-known, established banks. While some challenger banks might be familiar with consumers, TSB and Virgin Money being two examples, some will be less familiar.

Which is the best challenger bank?

With challenger banks offering, on average, higher rates on fixed-rate bonds it is no surprise that they dominate the fixed rate bond savings chart. In the one-year fixed rate bond chart for example, three challenger banks occupy the top five positions. Offering the highest rate in the chart is Al Rayan Bank, with its Fixed Term Deposit offering an expected profit rate of 2.32% quarterly on an 18-month bond. Al Rayan Bank is also fourth in the chart with a 12-month version of this account that pays an expected profit rate of 2.17%, which is also paid quarterly.

Bank of London and the Middle East (BLME) is in second and third place in the chart with two versions of its Premier Deposit Account, the 18-month bond version offers an expected profit rate of 2.30% and the one-year bond offers an expected profit rate of 2.20%. The fifth spot in the chart is also taken by a challenger bank, as QIB (UK) offers an expected profit rate of 2.15% on its Raisin UK – 18 Month Fixed Term Deposit account.

Is it safe to use a challenger bank?

UK challenger banks must be registered with the Financial Conduct Authority and so have protection on their accounts through the Financial Services Compensation Scheme (FSCS). This means savings deposited with these banks are as safe as with well-known and more established banks and building societies. Our guide on challenger banks provides more information about these types of banks.

Darren Cook, finance expert at Moneyfacts, said: “The disparity between the average rates offered by challenger banks, building societies and high street banks suggests that challenger banks have a greater need to raise capital via customer’s deposits compared to high street banks and building societies. The fact that high street banks pay on average 0.95% less on their five-year deals than the average challenger bank rates, indicates that they likely already have funds to manage from their existing customer’s savings and current account balances, whereas challenger banks may need to offer a little more incentive to encourage new customers to invest in their products.”


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. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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