Jeff Salway: Brassed off with your bank? Take alternatives into account
As more customers move their business away from high street lenders, Jeff Salway looks at the options
Are you finally at the end of your tether with your high street bank? The expected customer exodus from the big names following the banking crisis failed to materialise.
But events of the past month, including the Royal Bank of Scotland IT meltdown and the Barclays rate-rigging scandal, may finally be the catalyst some people needed to take their business elsewhere.
One of the most frequently cited objections to switching bank is that there are too few viable alternatives. But more than 10,000 people have moved their money from the big banks in the past three months, according to the Move Your Money campaign, which claimed ten million Americans have taken the same step since the banking crisis.
So how easy is it to find something different and, hopefully, better? Here’s our guide to some alternatives to the banking status quo.
Slowly, but surely, competition is improving on the high street. The Co-operative is seen as the main alternative to the big five, but Virgin (which bought Northern Rock) will be a contender when it launches its current account next year. And while Tesco Bank’s foray into the market has stalled, M&S recently set out plans to launch its own bank (albeit an HSBC-backed operation).
Metro Bank became the first new high street banking name for more than a century when it opened its doors in London two years ago. It offers current accounts, loans, savings and mortgages but does not have a presence north of the Border.
The Co-op has been the biggest beneficiary of what’s so far been a relatively modest flow of money away from the big names. With more than eight million customers it’s the biggest name in ethical banking and offers a full service – from current accounts and savings to mortgages and investments.
It follows an ethical policy based on regular surveys of customers asking about the areas they’d rather the Co-op avoid investing in – including arms and fossil fuels – and the areas they would like it to lend in, such as renewables.
It has around 1,000 branches on Britain’s high streets – including Britannia branches following their 2009 merger –and is close to sealing a deal to take over 632 Lloyds outlets.
Then there’s Dutch-owned Triodos, which opened its first UK branch earlier this year in Edinburgh. Current accounts aren’t yet available for personal customers, but it does offer savings and investments such as Isas, fixed rate bonds and regular saver accounts.
The money deposited is used to support local and ethical businesses. It publishes details of all the organisations to which it lends – including a significant number in Scotland – and pledges not to lend more than it has on deposit.
Kent-based Charity Bank, which is linked to the Charities Aid Foundation, invests its money in charities and other community or environment-focused organisations. It doesn’t offer a current account, but you can open savings accounts including Isas and child savings products. Account holders get details of the projects to which it lends and can also meet charities that benefit from the funding.
It enjoyed a surge of new business in the first six months of this year, while visits to its website have doubled over the past two weeks.
Mutuals are owned by members – typically those who have savings, mortgages or other products with them –rather than shareholders. Members get regular information about the organisation and have rights to vote and attend meetings.
Building societies are the best known, although the Co-op also qualifies. They are owned by members rather than shareholders and offer some of the most competitive savings and mortgages on the market.
Since the Barclays libor scandal erupted Britain’s biggest building society, the Nationwide, has seen an 85 per cent week-on-week increase in the number of customers opening and transferring their main account online. It is one of several to run current accounts, but most are savings and loans businesses.
Friendly societies are another member-owned option. They don’t offer current accounts but you can save up to £25 a month tax-free in long-term friendly society savings and investment products. The plans include life insurance.
These non-profit organisations are owned by members who fit “common bond” criteria. This has traditionally been based on working for or belonging to certain organisations or living locally, but new rules introduced this year have widened the membership criteria. The rule changes also allow credit unions to compete for savings business on a level playing field with other providers.
Credit unions believe the new rules will help them boost membership numbers further, after enjoying a surge of interest following the banking crisis. Dogged by a perception that they are only for people on low incomes or suffering economic hardship, the likes of Edinburgh’s Capital Credit Union and Glasgow-based Scotwest are looking to attract a wider membership base as Scots turn their back on mainstream banks.
Most credit unions offer savings and loans, a growing number have current accounts and the biggest also provide mortgages. Products also come with free life insurance.
Employer-based members can pay into their savings or make loan payments straight from payroll. Most credit unions give members cheque books and debit cards that can be used at ATMs.
If you’re looking for inflation-beating savings or affordable personal loans, social lending websites such as Zopa and RateSetter are worth a look.
These firms allow savers and borrowers to miss out the middleman by going direct to each other. Savers willing to lend money to those needing loans can earn interest averaging around 8 per cent for doing so. Borrowers typically get interest rates cheaper than those offered on the high street, although they have to prove first that they are able to afford the repayments.
The services aren’t protected by the Financial Services Compensation Scheme. However they offer protection by spreading deposits across a number of different borrowers to ensure lenders they don’t lose all their money in the event of one person defaulting.
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Tuesday 18 June 2013
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