While many customers may be sceptical about keeping their money with lesser known foreign or smaller UK banks, they could be getting much better returns on their cash by taking the leap of faith.
Currently, so called challenger banks only account for around 4% of banking assets in the UK, but this could be set to change as more customers become aware of the savings they could be making.
In the six years since the Bank of England cut the base interest rate to its record low of 0.5%, challenger banks have come out of the woodwork more and more to the point that now, the best rates available for fixed rate and notice accounts all come from these lesser known providers.
Notice account best buys now come from Shawbrook, Paragon and Charter Savings, who are all offering rates between 1.6% and 1.75%, whereas the best rates from major banks are closer to 1.5%.
If youíre after a fixed rate bond, youíre better off with Vanquis, UBL or the Punjab National Bank (offering rates between 2% and 3% depending on the length of the fixed term) than you would be with any of the big UK providers.
And the number of challenger banks is growing steadily with around 25 providers waiting in the wings for their banking license, putting more and more pressure on the major-league UK banks to step up to the competition.
Anne Bowes, a spokesperson for SavingsChampion, a savings comparison website, has reinforced the confidence consumers should have in smaller banks. She has said that while ìsome savers are reluctant to save with a bank theyíve not heard of and which doesnít have branches on the high streetî, it is important to remember that anyone who saves with almost all of these challenger banks will have their assets protected under the Financial Services Compensation Scheme (FSCS). The FSCS guarantees savers up to £85,000 of their savings should the bank they are with go bust.
Letís take a look at a few of the best examples of the competitors facing up to the major UK banks at the moment:
Punjab National Bank
The Punjab National Bank has been operating in the UK as a subsidiary of a bigger Indian back for nine years now, and is now offering the best rates on the market for fixed rate bonds for one to three year terms.
State Bank of India
The State Bank of India is another subsidiary of an Indian bank, the largest commercial bank in India no less, which can count the countryís government among its shareholders.
Operating now for 90 years in the UK, its customer base has moved on from the Indian expats it initially set out to serve and now provides some of the best deals on cash ISAs on the market.
Charter Savings Bank
Based near Newcastle, this young bank can proudly count its products among the best available for fixed rate savings accounts for one and four year terms, with interest rates sitting pretty at 1.75% and 2.35% respectively.
Shawbrook Bank has been around for four years now and was started up by a team of managers who left RBS. This young bank now has some of the best fixed rate ISAs available, with a five year plan paying out 2.25% interest.
Weíve all heard of the iconic British department store, but not many of us have considered banking with them. Harrods bank is actually owned by Qatar Holdings and despite its previous focus on high-end customers, it has now brought out launched a new 18 month bond with an interest rate of 1.85%.
Make the most of your money by comparing savings accounts with MoneyExpert.