The challenger banks fighting back against the high street giants

Which names should you be looking out for and what do they offer?

In the UK the ’big four’ high street banks – Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland Group – dominate personal banking.

But loyalty is fading as more and more ‘challenger banks’ raise the stakes on things like current accounts, mortgages, savings accounts, credit cards and personal loans.

Here is a selection of the main upstarts and what they can offer to tempt us to switch away from traditional banks and building societies.

Metro Bank

Metro Bank launched in 2010 and was the first new bank to hit the high street in more than 150 years. It’s built on offering a good service and the same deals to both new and existing customers.

It offers a free current account and cash account, savings accounts, mortgages, personal loans and a credit card.

It’s one of the only banks on the high street that still offers safe deposit boxes and with its credit or debit card international transactions in Europe are free.

In addition to what you’d expect from a bank, it offers non-traditional services including coin-counting machines, longer opening hours and a pet friendly policy at branches with free dog biscuits.

Tesco Bank

Tesco Bank launched in 1997 (then Tesco Personal Finance) and has been wholly owned by Tesco since 2008. Its motto is to make banking and insurance more rewarding and its vision is to be the bank for Tesco customers.

The supermarket bank offers a current account, savings accounts, mortgages, personal loans, credit cards, insurances and travel money.

A big draw is the ability to rack up more Clubcard points with its financial products.

The Tesco Bank Current Account for example pays 3% interest on balances up to £3,000 and pays Clubcard points on debit card spends. You can earn one point for every £4 spent with Tesco and for every £8 spent elsewhere.

The supermarket bank also has an impressive line-up of credit cards which allow you to earn points when you spend including a competitive 19-month 0% purchase credit card, a 17-month 0% purchase card that comes with 1,000 bonus Clubcard points and a 34-month 0% balance transfer credit card.

Virgin Money

Virgin Money part of Richard Branson’s Virgin family of companies, was launched back in 1995 (then Virgin Direct). The bank rapidly expanded in 2012 after acquiring Northern Rock and is now trading on the London Stock Exchange.

It offers a current account, savings accounts, credit cards, insurances, investments and pensions.

At the moment Virgin Money has the joint-market leading 0% balance transfer credit card, offering 36-months of 0% on balance transfers for a 3.49% transfer fee. 

It’s also recently joined the battle for current account customers with the Virgin Money Essentials Current Account. It’s a basic account suitable for those on low incomes or those who have a poor or non-existent credit history. Unusually for a no-frills account it offers to pay 1% interest on balances up to £100,000. The account is available to open in most Virgin Money stores in Scotland and Northern Ireland, with a nationwide rollout is anticipated in April.

One of the perks of becoming a Virgin Money customer is that you’ll get access to any of the five Virgin Lounges across the country (London, Edinburgh, Glasgow, Norwich and Manchester) where you can use iPads, access free WI-FI and get free refreshments.

Post Office Money

Last month the Post Office brought together all its financial services under a new brand - Post Office Money - in order to highlight its position as a leading challenger bank.

It offers current accounts, savings accounts, credit cards, mortgages, a range of insurances and foreign currency.

Post Office Money says it wants to become one of the UK’s leading financial services providers by 2020 and has led its assault with the launch of an innovative ISA that offers savers the flexibility to benefit from its joint market-leading easy access rate of 1.5% and two top ten fixed rate bonds, in one account. Read more in Post Office Money launches innovative 'mix and match' Cash ISA.

When it comes to mortgages the Post Office Money is a name that consistently appears in the best buy tables. Currently it offers the leading five-year fixed rate of 3.95% for those with a 90% loan-to-value mortgage with fees of £995. Its new Help to Buy two-year 3.98% fix on a 95% LTV (no arrangement fee) is also market leading.

As well as its range of competitive products the brand might appeal because of its huge network of branches. There are over 11,500 Post Office branches in the UK, more than all the high street banks have combined.

Invest your ISA allowance and get a better return

TSB

TSB returned to the high street back in September 2013, following the breakup of the Lloyds TSB brand. It has positioned itself as a local bank.

It has over 630 branches and offers current accounts, savings accounts, credit cards, mortgages, home insurance and personal loans.  Initially after the split TSB offered the same products as Lloyds Bank, but it has now started to produce more original deals.

In March 2014 for example TSB launched the Classic Plus Account, which offers a market-leading rate of 5% in-credit interest on balances up to £2,000. The Nationwide FlexDirect account also offers this return on balances (up to £2,500) but only for the first 12 months.

The Co-operative Bank

The Co-operative Bank is an ethical alternative to the big banks. It’s built on cooperative values and a unique ethical policy, shaped by customers, underpins how the bank is run.

It offers current accounts, savings accounts, credit cards, mortgages and personal loans.

Right now the Co-op is paying a £100 bonus to anyone that switches to one of its current accounts as well as £25 to a charity of the switcher’s choice. The offer applies to its Standard Current Account and Current Account Plus as well the smile Current Account.

Charter Savings Bank

Charter Savings Bank launched in January 2015 with a focus on the savings market.

It offers a one-year fixed rate bond paying 1.80%, a two-year fixed rate paying 2.15%, a three-year fixed rate paying 2%, a four-year fixed rate paying 2.10% and a five-year fixed rate paying 2.50%. It also offers an easy access account paying 1.25% and as 95-Day notice account paying 1.75%.

The one-year and two-year bonds are the most competitive, along with the 95-day notice account, though none are market leading.

Beat rubbish savings rates with a current account

Raphaels Bank

You might not recognise the name but Rapheals Bank has been around for over 200 years and is one of the oldest private banks in the UK.

Raphaels Bank provides consumer credit for cars as well as other niche lending areas such as mobility products and funds this by raising deposits from UK savers via its fixed rate bonds and notice accounts. It’s also the issuing bank behind some branded credit cards and pre-paid cards.

It offers a one-year fixed rate bond paying 1.80%, a two-year fixed rate paying 2.25% and a three-year fixed rate paying 2.50%, all of which are within the top three paying accounts in each category right now.

Secure Trust Bank

Secure Trust Bank is a UK bank that’s been around since 1954 and has been a subsidiary of the Arbuthnot Banking Group since 1985.

It offers a Basic Bank Account which comes with a pre-paid card, personal loans and savings products including a market leading seven-year fixed rate bond paying 3.11% and a competitive five-year fixed rate bond paying 2.96%.

Shawbrook Bank

Shawbrook Bank is a British bank that specialises in savings and lending that launched in 2011. Its mission statement is to offer a no-nonsense alternative to high street banks, combining traditional banking values with a modern approach.

It offers a range of competitive fixed rate bonds including a five-year fixed rate bond paying 3%, a three-year fixed rate paying 2.60%, a two-year fixed rate paying 2.20%, an 18-month fixed rate paying 1.90% and a one-year fixed rate paying 1.85%. It also offers a 120-day notice account paying 1.75%.

Paragon Bank

Paragon Bank launched back in February 2014 promising simple products and old-fashioned values.

It offers loans and savings accounts including a competitive three-year fixed rate of 2.40%, a five-year bond paying 2.91% and a 120-day notice account paying 1.60%.

Beat rubbish savings rates with a current account

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