They might not be a household name and they might not even have a branch on your local high street. But a new wave of so-called challenger banks are shaking up the banking sector, offering customers a better return on their cash and potentially offering other features, such as ethical banking and Sharia-compliant accounts.
It will come as no surprise that the UK economy has taken a hit in the last 12 months, and as a result, high street banks are offering ever-decreasing interest rates on their savings accounts, with once-competitive options such as NS&I now offering customers as little as 0.01% AER for an easy access account. Recent research even revealed that UK savers are losing out on up to £7 billion in interest by sticking with big banks! Despite the gloomy outlook, it is still possible (and perhaps more important than ever) to get a good return on your money, but you might need to switch to a smaller or specialist bank in order to do this. Here, we look at the myths surrounding saving with non-high street banks.
Myth: My money will be safer with a big bank
If you open a savings account with a UK-regulated bank, your deposits will be protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person, per banking group, in the event that the financial institution dissolves or fails. So no matter the size of the bank, if it’s FSCS protected, you can rest assured your money is safe and secure. At Raisin UK, we only work with banks that are protected by the FSCS or the European equivalent.
Myth: It’s impossible to get a good rate of interest anywhere right now
Currently, many high street banks are offering just 0.01% AER on their savings accounts, which means that if you put £1,000 away, after a year you would have a return of just 10p. (Factor in the inflation rate and you’d be forgiven for thinking it would be better to stash it all under your mattress instead!)
Actually, it is possible to get a more competitive interest rate on your money, and no matter how much you have saved, it’s well worth making every pound work as hard as possible. An interest rate difference of less than 1% in a fixed rate bond rate might seem small, but it can make a big difference to how much you earn from your savings. Currently, the most competitive rates available for both fixed rate bonds and notice accounts all come from less well-known providers, so it’s well worth shopping around. At Raisin UK, we currently offer up to 0.20% AER on an easy access account, and up to 0.95% AER on a fixed rate bond.
Myth: Smaller banks may be more aligned with my personal values
Ethical savings accounts are growing in popularity in the UK, as more people make an active choice to bank with financial institutions that share their values and that they consider ethical. Ethical banks have policies in place that prevent them from investing in certain types of companies, such as companies that test on animals, employ child labour or make cigarettes. Ethical banks don’t just prevent money from going into these types of industry, but they also tend to take positive action. Most ethical banks in the UK, such as Gatehouse Bank, a Raisin UK partner bank, also promote environmental and social progression.
Myth: It’s not worth the hassle to switch banks
Just like your energy or broadband provider, it often doesn’t pay to stay with the same bank year after year. Yet many people never do move banks because it feels like too much work. Perhaps you even still use the same bank account that you’ve had since having it opened for you as a child! But by keeping your savings with the same bank, you could miss out on earning more interest, or taking advantage of welcome bonuses or switch rewards.
At Raisin UK, you only have to register with us once to gain access to our full range of savings accounts from our partner banks. You can apply to open as many accounts as you like, and you don’t need to fill out a new application form each time – that’s all taken care of when you register, so you can continue to shop around and ensure your money is working for you exactly the way you want it to be.
Myth: In order to get a good rate of interest, I’ll have to lock my money away
It is true that the most competitive savings accounts tend to be fixed rate bonds, where you’ll lock your money away for a set term. In return, the rate won’t change from the day you open your account until the end of your fixed term, which means they are a particularly good option to consider in times of uncertainty and falling interest rates.
However, opening an easy access account allows you to continue earning interest on your money whilst still giving you the freedom to top-up and withdraw money at your convenience. So if you’re not sure what you want to do with your savings, but you know you’d like to keep earning as much interest as possible, an easy access account is a great option.
Grow your savings with a free Raisin UK Account
Whether you go for a fixed rate bond, a notice account or an easy access account, you’re likely to find more competitive rates of interest with a smaller bank than a high-street bank.
Register for a free Raisin UK Account to click to apply and gain access to exclusive savings accounts, rates and offers.
This article may contain information about partner banks, savings accounts, rates and bonus offers which were correct at the time of publication on 19/02/21.