Should you move to a new bank?

Should you move to a new bank?

Ever since the banking crisis in 2008 there has been plenty of talk about a new wave of banks that will bring competition to the sector. Seven years later, we are now seeing that influx of so-called challenger banks and they are certainly shaking things up. Here's what you need to know about them.

First off, a challenger bank doesn't have to be brand new. Many of them are old names that are either making a move into new areas or international brands establishing a UK presence. For example, Hampshire Trust Bank has been around for nearly 40 years but under new management it's now offering top savings rates, whereas RCI Bank is the UK arm of French RCI Banque, which was created by the Renault car group back in 1974.

However, some challenger banks are brand new. Names such as Charter Savings Bank, Atom or Ipagoo may mean nothing to you now but they could become the high street stalwarts of the future. And they are not alone: there are fledgling banks queuing up to launch.

"The governor of the Bank of England has reportedly got dozens of new banking licence applications awaiting approval, so expect more names in the coming months and years," says Anna Bowes, director of Savings Champion.

"It's an exciting time in financial services with many new players emerging to challenge some of the tired high street names with their battered reputations and unstable IT systems," says independent personal finance analyst Andrew Hagger.

So, which are the banks you need to watch out for?

RCI BANK

It only launched in February but RCI is already at the top of some of the savings tables, thanks to a range of very competitive accounts.

It recently upped the interest rate on its Freedom Savings Account in order to keep it at the top of the tables. The unusual move, though, was that it upped the rate for existing customers as well as new. "A rare occurrence in today's savings market, where many providers are actually cutting the interest rates on savings accounts for existing account holders," says Susan Hannums, director at Savings Champion.

But think twice before going for that top interest rate. RCI Bank is not covered by the Financial Services Compensation Scheme (FSCS) that currently protects up to £85,000 per institution. Instead, savers are protected under the EU guarantee system for up to ¤100,000 (around £70,360) – although the FSCS is being brought into line with the EU scheme from 1 January 2016.

CHARTER SAVINGS BANK

This is another challenger that is aiming to capture customers through savings accounts. It has been at the top of the best-buy tables for months. "I've been impressed with Charter Savings Bank," says Hagger. "It offers a wide range of no-frills but very competitively priced savings products and has played its part in a mini rate war that has helped to slowly nudge savings rates upwards."

The bank has already attracted 10,000 customers and more than £500 million in deposits in the five months since it launched. All deposits are covered by the FSCS, too. Certainly a bank to consider if you are looking for a new savings account.

ATOM BANK

So far the challenger banks have focused on savings accounts but that is about to change. Atom Bank, a brand new bank launching later this year, is planning to take on the high street behemoths with current accounts. The bank is the brainchild of Anthony Thomson, who helped set up Metro Bank five years ago.

It has impressive backing with star fund manager Neil Woodford putting up some of the £25 million needed to start the bank, and the former boss of HSBC's First Direct Mark Mullen as chief executive.

Atom Bank won't have branches. Instead, it will be operated entirely via a smartphone app. It won't be the only challenger to do so as several wannabe banks still waiting to be granted licences, including Starling, Ipagoo and Mondo, all intend to focus on banking apps.

The financial revolution has begun. Only time will tell how big a difference it will make. But so far, at least, we are benefiting from higher savings rates.
 

Published: 01 September 2015
Last updated: 01 September 2015

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