Jeff Salway: Challengers bank on higher returns

Put your money in RCI and you are getting the backing of French car and autosport giant Renault, whose successes have include Sebastian Vettels Red Bull F1 cars. Picture: AFP/Getty Images)

Savers with cash languishing in products offered by the traditional high street brands are missing out on the best deals as fresh competition emerges in the banking market.

Experts warn that the UK’s big banks are getting away with shortchanging savers because too few people are taking advantage of the superior returns paid by new, less familiar names.

New entrants including Shawbrook Bank, Charter Savings Bank and Renault-backed RCI are becoming dominant in the “best buy tables” as they offer cash returns more than double those available on the high street.

And competition is set to continue heating up as more banking licences are approved. Digital-only Atom Bank, the new venture from Metro Bank founder Anthony Thomson, is expected to launch in late 2015 after last month being granted a banking licence by the Bank of England. It follows quickly on the heels of Oaknorth Bank, which is expected to target long-suffering cash savers, while several other new outfits are close to approval.

The challenge to the small handful of banking giants that still dominate the market offers hope of improved competition for deposits and a greater focus on customer needs.

The high street banks are currently conspicuous by their absence from the savings “best buy” tables. The top two-year Isa is offered by Shawbrook, at 1.85 per cent, while the highest easy access deal is from RCI, paying 1.5 per cent, according to Moneyfacts. In contrast the average rate of the traditional banks’ easy access accounts is just 0.63 per cent.

All of the top fixed-rate bonds are provided by names with which many savers will be unfamiliar. The top one-year bond (2 per cent) is from Charter Savings, with Al Rayan offering the best deal over two years (2.32 per cent) and Agri Bank the highest over three years, at 2.7 per cent (but with a £10,000 minimum deposit). Lloyd Bank, by comparison, pays just 1.05 per cent over two years.

“There is a stark difference between what could be earned by a saver from a newcomer on the market compared with a high street provider,” said Charlotte Nelson, spokeswoman for Moneyfacts. “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.”

The biggest concern among savers reluctant to take a chance with the new names on the market is the security of their cash. Most providers are covered by the Financial Services Compensation Scheme (FSCS), which protects deposits up to £85,000 in the event of the licence holder going bust. Some aren’t covered by the FSCS, although most EU banks participate in a “passport” licence scheme.

While RCI doesn’t come with FSCS protection, for example, deposits of up to €100,000 (around £71,500) are covered by the French depositor scheme. “RCI is owned by Renault, so you’re basically trusting your money to a car manufacturer over an FSCS covered bank to earn 0.09 per cent more than you could get from Virgin Money at 1.41 per cent,” said Andrew Hagger, finance expert from Moneycomms.co.uk. “If I was taking a calculated risk I’d plump for the latter.”

Similarly, Agri Bank isn’t covered by the FSCS but it is subject to the Malta Depositor protection scheme (protecting up to €100,000).

The new UK-registered banks, including Charter Savings and Paragon Bank, are fully covered by the FSCS.

But the relatively slow response to the markedly better rates offered by the newcomers in the savings market suggests any shift away from the status quo will take time.

“Since the financial crash, mis-selling problems and various subsequent rate rigging and currency fixing scandals UK many consumers have become disillusioned with the established high street banking giants,” said Hagger.

“The market certainly needs some new blood, and people shouldn’t be afraid to move their business to an up and coming or lesser known brand, as long as they do a little homework first to ensure it’s a good fit for the way they run their finances.”

• Visit https://protected.fscs.org.uk/money-protection-checker/ to see if your savings are covered