Lesser-known providers have been leaving high street banks in the dust with their savings rates over the last couple of years, and today's top deals are almost exclusively offered by brands you might not be familiar with.
But can these providers be trusted with your hard-earned savings? Read on to find out more.
Where can you find the best savings rates?
This table shows how the best savings accounts and Isas currently compare. Results exclude accounts that impose opening restrictions, and are ordered by rate.
| Account type | Provider | Interest rate (AER) | Provider customer score | Minimum investment | Opening methods | Interest paid |
|---|---|---|---|---|---|---|
| Instant access | Cahoot | 4.75% | 61% | £1 | Internet | Monthly, yearly |
| Instant access Isa | Chip | 4.89% | n/a | £1 | Mobile app | Monthly |
| One-year fixed rate | Vida Savings | 4.65% | n/a | £100 | Internet | Monthly, yearly |
| One-year fixed rate Isa | United Trust Bank | 4.5% | n/a | £5,000 | Internet | On maturity |
| Two-year fixed rate | Zenith Bank (UK) Ltd | 4.5% | n/a | £1,000 | Internet, mobile app | Yearly |
| Two-year fixed rate Isa | Shawbrook Bank | 4.47% | n/a | £1,000 | Internet | Monthly, anniversary |
| Three-year fixed rate | Birmingham Bank | 4.63% | n/a | £5,000 | Internet | Yearly |
| Three-year fixed rate Isa | Shawbrook Bank | 4.42% | n/a | £1,000 | Internet | Monthly, anniversary |
| Four-year fixed rate | Oxbury Bank | 4.54% | n/a | £1,000 | Internet | Yearly |
| Four-year fixed rate Isa | UBL UK | 4.05% | n/a | £2,000 | Branch, internet, mobile app, postal | Monthly, quarterly, anniversary, on maturity |
| Five-year fixed rate | JN Bank | 4.6% | n/a | £100 | Internet | Yearly |
| Five-year fixed rate | Shawbrook Bank | 4.23% | n/a | £1,000 | Internet | Monthly, anniversary |
The absence of big high-street names is in part down to the fact that these challenger banks and platforms don't usually have physical branches. This means they have fewer overheads to worry about, so can offer higher rates while maintaining profit margins.
Find out more:How does the high street compare?
High-street banks have struggled to offer good rates over the last couple of years, and data from Moneyfacts shows the gap in rates is widest on instant-access products.
The current average rate for an instant-access saver is 2.9% AER, but you'll struggle to find a rate anywhere near that high with any of the 'big four' providers – Barclays, HSBC, Lloyds Bank or NatWest.
The top high-street rate on an instant-access saver, without opening restrictions or withdrawal limits, comes from Barclays, offering 1.51% AER. That's three times less than Cahoot's top instant access rate of 4.75%.
When it comes to instant-access Isas, the big banks are even less competitive. Chip's market-leading deal pays 4.89% AER – four times more the 1.15% offered by the best restriction-free high-street Isa from Lloyds Bank.
High-street banks offer the odd enticing instant-access rate – Barclays' Rainy Day Saver pays 5.15% AER – but you'll need a current account to open it and the rate is only available on the first £5,000 saved, after which it drops to just 1.6%.
How rates affect returns
If you have a large lump sum, failing to switch to a top rate account could leave you hundreds of pounds out of pocket.
For example, if you invested £10,000 in a high street account paying 1.15% AER, you could expect to earn £151 in interest over a year.
But if that balance was invested in an account paying 4.75% AER, your annual interest income would increase to £475.
Find out more:Fixed-rate gap is tighter
The biggest banks fare better when it comes to fixed-term accounts, although they still lag behind challengers.
The best one-year bond on the high street comes from HSBC and pays 4.15% AER, compared to the 4.65% offered by Vida Savings. Barclays has the best one-year Isa rate of 4% AER – not too far off United Trust Bank's top deal of 4.5%.
The difference in rates is also tight when it comes to two-year fixes, but none of the big four high street providers offer bonds with terms longer than 24 months.
Is it safe to save with a smaller provider?
If you're nervous about saving with a bank or platform you've never heard of, there are some checks you can make to ensure your money is protected.
For example, while the likes of Zopa, Starling and Monzo have banking licences in the UK, some companies such as Monese operate under electronic or 'e-money' licences instead. This means that although money must be ring-fenced in a segregated account, you don't get direct protection from the FSCS.
Many digital banks have location-based protections to prevent fraudulent payments where the location of the card and the app don't match. Others use biometric technology such as your voice and face to secure the app.
Find out more:Look beyond rates when shopping around
When deciding the best home for your savings, make sure you compare accounts from different banks. But don't just look at the rate.
Another important consideration is how you open and manage the account. The majority of market-leading deals can only accessed online or via a mobile app. Therefore they may not be right for someone who prefers to deal with their account face-to-face in a branch.
Some do, however, have arrangements with other banks or the Post Office to facilitate making deposits over the counter. Cheques can also often be paid in using a smartphone banking app.
Consider customer service
Only one of the providers topping our best-rate table – Cahoot – had a sample size large enough for us to generate a customer score. However, it was the lowest ranked provider in our analysis, scoring a less-than-impressive 61%.
If you're looking for the very best bank or building society in terms of overall customer score and consistently competitive savings rates, look out for our Which? Recommended Provider (WRP) endorsement. Our current WRPs are Zopa, Marcus by Goldman Sachs, Yorkshire Building Society and Moneybox.
source https://www.which.co.uk/news/article/why-the-best-savings-rates-are-offered-by-providers-youve-never-heard-of-aSQU89P9WfXB