Wave of new banks that rose from the ashes

OVER the past decade, familiar High Street banks have disappeared and interest rates have tumbled.

Gone are the Icelandic banks — Icesave, Heritable Bank and Kaupthing Edge — to be replaced by challengers such as Charter Savings Bank, Shawbrook Bank, OakNorth Bank, Ford Money, recently joined by PCF and Wyelands.

Foreign banks RCI Bank, Ikano Bank and Bank of Cyprus have also appeared.

Our research shows it’s often these newcomers and online-only deals that give savers the best offers. Eight out of the ten top-paying accounts are with banks which did not exist ten years ago. This is the same for four out of the top ten easy-access accounts, according to Savings Champion. Atom Bank, via app only, and Sharia compliant banks, the Bank of London and the Middle East and Al Rayan Bank have some of the most competitive rates.

Rachel Springall of Moneyfacts says: ‘Challenger banks offer some of the best returns but deals might not last long as banks manage the flow of new money.’

Fifteen building societies disappeared in the aftermath of the crisis, leaving us with just 44 names and 500 branches. Among others Alliance & Leicester and Bradford & Bingley were rescued by Santander, Cheltenham & Gloucester is now part of Lloyds Bank, and Britannia Building Society is part of Co-op Bank.

As the Government looked to calm savers, the maximum compensation you could claim if your provider went bust was raised in stages to £85,000, up from £31,700 at the time of the Northern Rock debacle. The amount you can invest in a tax-free cash Isa each year rose from £3,000 to £20,000.

But tax changes mean fewer people than ever are bothering to use their allowance.

In 2007, tax at 20 pc was deducted from interest before it reached you. Higher rate payers paid 20 pc more. Those on lower incomes paid 10 pc on some interest. Now interest is paid out before tax. Basic rate tax payers don’t pay tax on first £1,000 of interest. Higher rate payers get £500 before paying tax. Paltry savings rates mean few risk busting the allowance.

The base rate tumbled from 5.75 pc to 0.5 pc, in the 18 months to March 2009, sending savings rates crashing.

Worse was to come in August 2012 when the Bank of England launched its Funding for Lending Scheme, letting banks borrow at 0.25 pc. They no longer needed to woo savers so rates fell further.

With another rate cut in August 2016, the knock-on effect for savers, particularly pensioners, has been devastating.