Why the best sav­ings rates come from banks you haven’t heard of

The Daily Telegraph - Your Money - - YOUR MONEY - Amelia Murray

Savers look­ing for the best in­ter­est rates will not find them at high street banks but from providers that most have not heard of.

Since a new breed of smaller, on­line-only providers emerged in sum­mer 2015 with top rates, high street providers have fallen down the best-buy ta­bles.

For ex­am­ple, in the fixe­drate bond mar­ket, mo­bile-only provider Atom Bank pays the high­est rates of 1.4pc and 1.6pc for one and two-year bonds.

This com­pares with the high­est rate on the high street from Na­tion­wide, which pays 0.65pc on its one-year bond.

New dig­i­tal bank Masthaven of­fers top rates of 1.67pc, 1.84pc and 2.01pc on its three, four and five-year bonds.

Van­quis Bank Sav­ings, part of the Prov­i­dent Group, a FTSE 100 com­pany, also of­fers com­pet­i­tive fixed-rate bonds, as do Paragon Bank and Zenith Bank UK, a sub­sidiary of a Nige­rian provider.

The high­est-pay­ing easy­ac­cess ac­counts are of­fered by slightly more fa­mil­iar names.

The Post Of­fice pays 1.01pc. Tesco Bank, Na­tional Sav­ings & In­vest­ments, Leeds Build­ing So­ci­ety and RCI Bank all pay 1pc.

In com­par­i­son, RBS’s in­stant saver of­fers just 0.01pc on bal­ances up to £49,999.

Tom Adams, from ad­vice site Sav­ings Cham­pion, said the smaller providers needed to com­pete for cus­tomers’ cash to bal­ance their books by lend­ing out savers’ de­posits to bor­row­ers.

He said high street banks, on the other hand, were able to rely on their name and branch lo­ca­tions to get the cus­tomers and de­posits they needed.

Tra­di­tional providers are also able to bor­row cheaply us­ing the Bank of Eng­land’s Fund­ing for Lend­ing Scheme, which was later re­placed by the Term Fund­ing Scheme. This al­lows banks to bor­row straight from the Bank at a 0.25pc in­ter­est rate.

“High street banks sim­ply haven’t had to work as hard for savers’ cash,” said Mr Adams.

He said there was no need to shy away from un­fa­mil­iar banks as long as they were cov­ered by the Fi­nan­cial Ser­vices Com­pen­sa­tion Scheme, which pro­tects up to £75,000 of sav­ings, or £85,000 from Jan­uary 30.

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