The Battle of the Challenger Banks

31st July 2015

Challenger Banks lead the way offering 90% of the available fixed rates says Savings Champion in this sponsored editorial

Amidst the backdrop of record low base rate and falling savings rates the new breed of Challenger Banks have been a beacon of light. Where larger providers appear to be shunning savers in favour of banking customers, slashing existing savers rates and offering less than competitive rates for new customers, the Challenger Banks are bucking the trend – they clearly want savers’ money and they are not afraid to offer table topping rates to get it.

Secure Trust Bank is a good example of this, recently increasing the rates on a selection of Fixed Rate Bonds, with several of the improved bonds now appearing in our best buy tables. With rates of up to 3.11% gross/AER, even after inflation, savers will be getting a guaranteed return that offers great value in the current climate.

This is the latest move in a flurry of activity in this area from the likes of Charter Savings Bank, United Trust Bank, Vanquis Bank and Paragon Bank, who have all featured at the top of the fixed rate best buy tables over recent weeks, in several cases offering the top rate for a full range of terms.

Out of 25 fixed rate bonds currently in our best buy tables, just three are not one of the Challenger Banks, and even those three are not high street savings providers. Compared to the High Street Banks, Challenger Banks are leaving these traditional well known providers for dust.

The majority of Banks and Building Societies in the UK are protected by the UK Financial Services Compensation Scheme meaning there is little difference between a Challenger Bank and a High Street Bank, other than a better rate of interest.

For savers relying on the high street, the difference is stark and getting it wrong can cost you dearly. Lloyds Bank offers a paltry 0.80% gross/AER fixed for 1 year or lock in for 3 years and you’ll get a rate of just 1.35%, 50% less than the very best from a Challenger Bank. *

Better still with the proposed introduction of the new savings allowance coming in next April, many savers could receive the interest tax free! HMRC state that provided interest is added to the account after April 2016, interest will tax free within the new Personal Savings Allowance (PSA) rules.

Based on the most recent information from the Treasury, for a basic rate taxpayer, the effect of using the PSA is to increase the interest covered by the PSA by 25%. For a higher rate taxpayer, albeit on a lower level of PSA, the effect is an uplift of more than 60%!

It’s worth noting that the Personal Savings Allowance is not currently in legislation, although it is expected to be introduced in a future Finance Bill.

Over 3% gross/AER and your money is protected under the UK Financial Services Compensation Scheme. Unlike many alternative savings products that appear to offer eye watering rates of interest, these rates are guaranteed and your money is safe up to £85,000, per person.

You can find out more about challenger banks in our new Guide to Challenger Banks in the Guides Section, or why not call us on 0800 321 3581 and speak directly to one of our savings advisers for more details on the best accounts for you.


* Lloyds rates based on balances up to £50,000.

This article is sponsored by Savings Champion

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