Following the Bank of England ‘s announcement to keep interest rates low, coupled with off-target inflation reports, savers have found themselves in a rather bleak position at the moment.
Last week, the Bank of England announced that interest rates would be staying at the long-maintained low of 0.5% for what will likely be another year or two at least. With inflation currently at around 0.1% (a solid 1.9% below the government ‘s target), this news makes for a “backdrop which typically makes for measly returns” according to Maike Currie at Fidelity International.
However, hope is not all lost for those looking for a bit of return on their nest-egg; challenger banks have been stepping into the ring and making a lot of noise of late, offering some of the most competitive fixed-term saving rates on the market.
Metro Bank ‘s latest fixed rate deal is an 18-month bond and pays out interest at 2.4%, topping the ëbest-buy ‘ charts for similar products.
Those looking to save for longer can enjoy a 2.7% rate on a three-year fix, or for shorter term deal, 2.1% for a year. All accounts require customers to deposit a minimum of £500 to open them.
The young Metro Bank has been making waves recently, and this latest offering has cemented its position.
“There ‘s been an intense battle among ëchallenger brands ‘ in the fixed rate savings market for months now” said MoneyComms ‘ Andrew Hagger, “but the competition level has just been ratcheted up another notch with impressive new rates unveiled by Metro Bank.”
To top it all off, Metro have just announced that they will now be allowing customers to apply for accounts online, for the first time in their history.
Not far off Metro Bank ‘s rates are two more challenger banks, Charter Savings and Aldermore. The former is offering a one-year deal that pays out 2.07% interest, and the latter a two-year fix with interest set at 2.35%.
Charter Savings Bank is the youngest of the lot, having only opened its doors in March this year, but since then, over 25,000 customers have joined up, with savings totalling around £1 billion at the time of writing.
Savingschampion.co.uk director Sue Hannums has praised the challenger banks and their commitment to providing decent rates in what has been otherwise a rather barren landscape as far as savers are concerned. “Savers may have suffered one of the worst periods in living memory in recent years,” she said, “but things would have been a lot worse without the challengers.”
“Over recent months some rates for new savings accounts have hit a two-year high driven by challenger banks, while rates for existing savers continue to plummet. Better known savings providers are showing little to no interest in savers ‘ deposits, while most of the high street branks seem firmly focused on current account customers only.”
Despite the FCA ‘s recent drive to increase competition in the banking sector, it still seems that customers are, largely speaking, somewhat reluctant to make the switch to challenger banks. However, with consistently impressive rates, decent customer service reports, and the same FSCS protection that customers of larger banks enjoy, this does look to change. Now is the era of the challenger bank.