Can overseas banks that operate in the UK offer a better home for your savings than British institutions?
When it comes to picking a savings account it’s natural to go for a name we know and think we can trust, as well as the top rate we can find.
At the moment locking up your money in a fixed rate bond can get you a better return on your savings, but many of the providers might be unfamiliar.
Overseas banks like ICICI and the First Bank of Nigeria that operate subsidiary brands here in the UK are just a few of the colourful names that are dominating the tables at the moment.
The unknown is enough to make anyone nervous, especially when it comes to our savings, but can British banks offer anything better?
How they compare
Below I have selected the top fixed rate bond on offer from an overseas bank and the top fixed rate bond on offer from a British bank across four different fixed terms from two to five years.
|
Fixed term |
Top account from an overseas bank |
Interest rate AER |
Top account from a UK bank |
Interest rate AER |
|
Two years |
2.30% |
Kent Reliance Two-Year Fixed-Rate Bond Issue 15 |
2.35% |
|
|
Three years |
2.55% |
Raphaels Bank Three-Year Fixed-Rate Bond |
2.40% |
|
|
Four years |
Bank of London and the Middle East Sharia-Compliant Premier Deposit Account* |
2.40% |
Shawbrook Bank Four-Year Fixed-Rate Bond (Issue 6) |
2.55% |
|
Five years |
First Save Five Year Fixed-Rate Bond |
2.90% |
Secure Trust Bank Fixed Rate Bond |
2.91% |
*Anticipated profit rate
ICICI Bank UK – a subsidary of India’s largest private bank ICICI Bank Ltd – outshines any deal from a UK provider on a three-year fixed rate.
ICICI has been operating in the UK since 2003 and boasts a capital adequacy ratio (the amount of capital it holds in cases of losses) of 32.42% on its website – reassuring considering the amount of UK banks with black holes on their balance sheets at the moment.
Apart from its leading three-year fixed rate deal paying 2.55%, ICICI also has a two-year deal paying 2.30% and a five-year deal paying 2.75% that sit just below the leaders in their categories.
Another unfamiliar name making its mark in the tables is First Save, which is part of FBN Bank (UK) – a wholly owned subsidiary of the First Bank of Nigeria. It currently offers the joint top rate of 2.9% on a five-year fixed rate bond.
[SPOTLIGHT]However, apart from ICICI and First Save, British providers take the lead for fixed rate savings in three out of five cases. Though you might not have ever heard of these institutions either.
Shawbrook Bank, for example, is top for a four-year bond, paying 2.55%, and joint top for a five-year bond, paying 2.9%. It’s a British bank that dates back to 1971, but the Shawbrook name has only been around since 2011 after RBS Equity Finance bought it.
Kent Reliance, which has the top one-year and two-year fixed rate deals, is perhaps more well known though it used to be known as Kent Reliance Building Society. The accounts on offer here though are limited edition and are likely to disappear soon.
I looked at Raphaels Bank in more detail recently in Raphaels Bank: a great home for your savings you’ve probably never heard of.
Meanwhile, Secure Trust Bank is a retail bank based in Solihull in the West Midlands.
It seems that if you’re chasing the best rate you will come across foreign bank subsidiaries as well as UK banks you probably haven’t heard of. So how can you make sure your savings are safe?
Safety signs
The collapse of Iceland’s Icesave bank in 2008 is a very recent memory.
So it's understandable that savers might be wary of an overseas bank or even a provider they might not have heard of with an attractive rate.
But as long as a provider is a member of the UK Financial Services Compensation Scheme (FSCS) your money is safe, up to a limit.
Membership to the scheme is a hallmark of safety for UK savers as it protects deposits of up to £85,000 per individual per institution (£170,000 for joint accounts). This amount is guaranteed should the institution collapse.
ICICI, First Save and the Bank of London and the Middle East all carry this protection, as do Kent Reliance, Secure Trust Bank, Shawbrook Bank and Raphaels Bank.
Why you should keep an eye out
At the moment UK banks and building societies don’t need to rely on deposits, instead they’re being given the option to borrow cheaply from the Government via the Funding for Lending Scheme.
This initiative to stimulate lending has driven saving rates down in the last year and compounded the effect of a record low base rate.
But overseas banks that have set up in the UK still rely on depositors’ money for lending. This means rates tend to be better and are around for longer.
If you don’t want a bond
Sadly if you don’t want to lock up your cash in a fixed rate bond, you will be hard pressed to find a decent interest rate. No easy access account pays over 1.8% at the moment.
But some current accounts are offering generous rates of interest that surpass both fixed rate bonds and easy access accounts.
The Santander 123 Current Account for example pays 3% on balances of £3,000 up to £20,000. On top of this you can earn up to 3% cashback on selected household bills you pay by direct debit.
Elsewhere the Nationwide FlexDirect account pays 5% on balances of up to £2,500 for 12 months when you deposit £1,000 a month. You also get access to exclusive deals called Flexclusives and a 12-month fee-free overdraft.
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The best regular savings accounts
The best instant-access savings accounts
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