Savers could earn much more interest on their cash by opening accounts with challenger banks, rather than established brands.
Research by Gatehouse Bank and comparison website Moneyfacts shows that a saver today would earn an average of 1.82% on a one-year fixed saver with a challenger bank, compared to just 0.63% on the high street – a 1.19% difference.
The same gap in rates also exists for other savings products. In the two-year fixed saver market, the average high street product returns 0.76% to savers compared to 2.05% in challenger bank – a gap of 1.29%.
For easy access savers, a customer of a high street bank will earn 0.39% on average compared to 1.23% in a challenger bank – a 0.84% difference.
For the purpose of this survey, a challenger bank is defined as a bank which is not one of the UK’s nine biggest providers - Bank of Scotland, Barclays, Halifax, HSBC, Lloyds Bank, Nationwide, NatWest, RBS, and Santander.
What are the top paying savings accounts?
The top paying easy access account currently on the market is the ICICI Bank UK HiSAVE Bonus Saver (Series Two). It pays 1.35%, although this includes a 0.7% bonus until 31 January 2019. It must be opened online and a minimum balance of £750 is needed to get the top rate.
In the one-year market, the Investec Bank One Year Fixed Term Deposit has a top rate of 1.9%. This account can be opened online or by post, but is only available to those with balances of £25,000 or more.
Finally, the Ikano Bank Fixed Two Year Saver is the best account for saving over two years, paying 2.1%. You can open this account online with a minimum initial deposit of £1,000. But remember your cash here is covered by the Swedish deposit protection scheme rather than the UK's Financial Services Compensation Scheme (FSCS).
‘Too many savers opt for household names’
Charles Haresnape, chief executive of Gatehouse Bank, says: “If proof were needed that, even in a low interest rate environment, it’s worth shopping around, then it’s the dramatic difference in the rates paid to the nation’s savers by challengers compared with larger banks.
“Sadly too many savers still opt for products from household names as they are unaware of the best buys that exist beyond the high street. What they also often overlook is the fact that deposits in UK challenger banks are protected by the FSCS in exactly the same way as with a high street bank.”
What is Gatehouse Bank?
Gatehouse Bank is a Shariah-compliant UK bank. This means it does not pay interest on its savings products, it instead delivers an “expected profit rate” to customers.
In practice, this works in a similar way to an interest-earning savings accounts, but it is important to note that this rate is not guaranteed in the same way an interest rate is.
Cash saved with Gatehouse is protected by the FSCS up to £85,000.