BIG RETURNS?
Who are the tiny banks paying They’re putting the High Street giants to shame with table-topping deals, so...
ABANKING revolution is under way — and it’s terrific for savers.
A host of new banks are appearing, challenging big High Street names such as Barclays, HSBC, NatWest, Lloyds, Halifax and Santander.
Already more than a dozen are up and running. And more, such as Starling, Monzo, Tandem, Civilised, Zopa and Amicus, will join the challenge in the coming months with either savings or current accounts.
New banks pay much better rates to savers willing to tie up their money in fixed-rate bonds. Unlike the big banks, they want your money so they can lend it out and grow their businesses.
Atom Bank, launched last year, pays 1.8 pc on its one-year fixed rate bond. HSBC and NatWest pay just 0.5 pc on the same deal.
But can you trust the new ones already up and running?
When it comes to safety, they are no different from the well-established banks as your cash is covered by the UK Financial Services Compensation Scheme (see Know Your Limits, far right). This gives you up to £85,000 compensation — £170,000 on joint accounts — if a bank goes bust.
There are two exceptions: money in accounts with French-owned RCI Bank and Swedish bank Ikano is covered by their home schemes — up to €100,000 with the French scheme (around £87,000) and up to £85,000 under the Swedish one.
Charlotte Nelson, from data analysts Moneyfacts, says: ‘ New banks are leapfrogging each other to offer top rates.
‘Savers might think these lesser-known banks risky. But with protection schemes in place, there is little to worry about — and a lot of interest to be lost if you ignore them.’
Kevin Mountford, from comparison site Moneysupermarket.com, says: ‘New banks are governed by our Prudential Regulatory Authority and the Financial Conduct Authority in the same way as traditional ones. They are good news for savers as competition heats up.’
Most new banks — with the notable exception of Metro Bank — do not have branches in the High Street. You open and operate them online, through the post or by an app on your smart phone. There is, however, usually a customer services number you can call for help.
Here is the lowdown on the business behind the name:
AL RAYAN
THE sharia-compliant bank, with its head office in Knightbridge, London, offers accounts online, by post and through its 13 branches.
It is run by Sultan Choudhury, who previously worked at Charles Schwab Europe, Barclays Private Bank and accountants Deloitte.
Islamic banks operate without interest, so offer an ‘expected profit rate’, taxed in the same way as savings interest. If it fails to obtain the expected return, you can cash in your bond without penalty.
Your money is lent as shariacompliant mortgages. TOP deal, 1.31 pc for 1 year; alrayanbank.co.uk, 0808 278 7146.
ALDERMORE BANK
HERE, you open an account online but can manage it by phone or post too. Based in Wallsend in Newcastle and Peterborough, Cambridgeshire, this independent UK bank is quoted on the stock exchange.
Since its launch in 2009, it has been run by Philip Monks who has over 30 years’ industry experience with senior roles at Barclays, Gerrard Investment Management and Europe Arab Bank.
Your money is lent to businesses, such as property developers, and homebuyers, including buy-to-let. TOP deal, 1.5 pc fixed for 1 year; aldermore.co.uk; 0345 604 2678.
ATOM BANK
SINCE its full launch in October last year, Atom has attracted £110 million from savers. It is the first bank to offer savings accounts run exclusively through an app on your smartphone or tablet.
The Durham- based privatelyowned bank was set up with £135 million from investors and recently raised another £83 million.
It is run by Mark Mullen, ex-boss of internet and telephone bank First Direct. Your money is lent to small businesses in the UK and as mortgages to homebuyers. TOP deal, 1.8 pc fixed for 1 year; atombank.co.uk.
CHARTER SAVINGS BANK
SET up in 2015, its online accounts offer consistently best or near-best rates. Midlands-based, it’s owned by Charter Court Financial Services and is run by Paul Whitlock, who has over 20 years’ experience in banking with First Direct, HSBC, and OneSavings Bank.
Your money is lent out by Precise Mortgages, part of the same group.
TOP deal, 1.4 pc fixed for 18 months; chartersavingsbank.co.uk; 0800 032 9999.
IKANO BANK
SWEDISH-OWNED and based in Nottingham, it’s been in the UK since 1994 but only launched its savings accounts in 2015. It offers fixed-rate accounts online and an easy-access account.
Run by Dan Joy, who has worked for Zurich and Capital one banks, Ikano is owned by the Kamprad family, which set up Ikea. Your money is used as personal loans for home improvements or new cars. TOP deal, 1.7 pc fixed for 3 years; kano.co.uk; 0371 781 3080.
HAMPSHIRE TRUST BANK
LAUNCHED as a fully-fledged bank in 2014, after a management buyout backed by Alchemy Special Opportunities Fund II LP, it offers online and postal accounts.
Last month, it moved into a new HQ in Bishopsgate in the City. It is run by Mark Sismey-Durrant, who has 35 years’ experience in banking, with over 25 at board level.
The bank loans your money for hire purchase and leasing finance to businesses and individuals, as well as on property for businesses; TOP deal, 1.2 pc for 2 years; htb. co.uk; 020 7862 6222.
HARRODS BANK
YOU can open an account by post, online or by visiting the branch in the Knightsbridge store. It is not a
new bank — it has been around for 120 years — but recently has offered top-paying fixed rate bonds.
Its ethos is to extend its renowned customer service to banking.
At £20,000, the minimum amount you need to open an account is higher than other banks.
The independent private bank is run by chief executive Mark Stephens, who joined last year from Aldermore Bank, where he was deputy chief executive.
Your money is lent as residential and buy-to-let mortgages, minimum £500,000, in England and Wales.
TOP deal, 1.15 pc fixed for 2 years; harrodsbank.co.uk; 0800 387704.
MASTHAVEN BANK
BASED in London’s Soho, the bank offers bonds online. Masthaven works like a partnership and, at launch, four out of five employees were shareholders.
Run by founder Andrew Bloom, a chartered accountant formerly with KPMG and experienced in lending on property, your money provides mortgages and bridging loans in the UK, as well as going to small and medium-sized house builders. TOP deal, 1.58 pc fixed for 2 years; masthaven.co.uk; 0330 363 6666.
METRO BANK
AN INDEPENDENT UK bank quoted on the stock exchange since last year, it is the first new High Street bank for more than 100 years. Launched in 2010, its chief executive since inception is Craig Donaldson, who held senior roles with RBS, Barclays and HBOS. It offers easy-access accounts, fixed rate bonds, cash Isas and a current account through its 48 ‘stores’, open seven days a week, in the South-East of England. This year, it plans to open a further three stores — in Luton, Peterborough and Oxford — with others to follow. Your money is lent as mortgages, personal loans and credit cards in the UK.
TOP deal, 0.75 pc easyaccess cash Isa; metrobankonline. co.uk; 0345 0808 500.
OAKNORTH BANK
BASED in Mayfair, London, OakNorth launched its first savings accounts in 2015, available online.
Founded by Rishi Khosla, the chief executive, together with Joel Perlman, the pair built up their previous business, Copal Amba, which provides analysis to companies to improve profitability into a 3,000-employee global brand and sold it to ratings agency, Moody’s, in 2014.
Your money is lent to UK entrepreneurs and mid- sized companies looking for growth capital to expand their businesses. TOP deal, 1.62 pc fixed for 1 year; oaknorth.com; 0330 380 1181.
PARAGON BANK
SOLIHULL-BASED Paragon Bank was set up in 2014. It is owned by Paragon Group of Companies plc, which is listed on the stock exchange, and has been a buy-tolet mortgage lender since 1985.
Managing director Richard Doe, who runs the bank, was previously chief executive of ING Direct UK. Last month, it launched a top
paying online easy-access Cash Isa at 1.05 pc. Your money is lent to small businesses and individuals in the UK. TOP deal, 1.56 pc fixed for 2 years; paragonbank.co.uk; 0800 052 2222.
RCI BANK
THIS French-owned bank launched here in 2015 and offers easy-access and fixed rate bond rates online.
Its easy-access Freedom account offers a top 1.1 pc. Based in Watford, Herts, and Newcastle, it is run by Jean-Louis Lebauge, who has over 20 years’ experience with owner RCI Bank and Services, part of the Renault group.
Your cash is used for loans to UK customers to buy a new or used Renault, Nissan, Dacia or Infiniti.
TOP deal, 1.1 pc variable, easyaccess Freedom account; rcibank. co.uk; 0330 2000 300.
SECURE TRUST BANK
BASED in Solihull, West Midlands, the bank offers fixed rate bonds and a notice account. You apply online and your account is then managed by phone or post.
Founded in 1954, it was a subsidiary of Arbuthnot Banking Group until last year when it emerged as a serious contender and is now quoted on the stock exchange.
It is run by Paul Lynam, who joined the bank in 2010 after 22 years at NatWest and RBS. Your cash is lent in the UK to residential property developers and as loans to consumers wanting a new car.
It tends to launch a bond at the start of each month to run for four weeks. They can be snapped up quickly and often withdrawn early. TOP deal, 2.25 pc fixed for 5 years; securetrustbank.com; 0121 683 6451.
UNITED TRUST BANK
THE London-based UK bank, which offers fixed rate bonds online or by post, is mainly owned by its management team and a small number of private shareholders.
Launched in 1955, it recently began highlighting its top fixed-rate bonds for savers.
It is run by Graham Davin, previously chief financial officer at Investec Bank and MD of Dutch bank Insinger de Beaufort before leading the management buy-out of United Trust. Your money is lent as loans to housebuilders, developers and small businesses as well as bridging loans to individuals. TOP deal, 1.5 pc fixed for 1 year; utbank.co.uk; 020 7190 5555.
VANQUIS BANK SAVINGS
LAUNCHED in 2011, London-based Vanquis Bank Savings offers online fixed-rate bonds.
Part of Provident Financial plc, a stock-exchange quoted firm which specialises in credit card lending to UK consumers, many of whom had debt problems. Chris Sweeney, formerly of Barclays, runs it. TOP deal, 1.85 pc for 3 years; vanquissavings.co.uk; 0191 505 0033.