Why the high street banks are the worst place for your money


Updated on 12 November 2013 | 3 Comments

Don't settle for the rubbish rates on offer from the high street banks. You'll get a better deal looking elsewhere.

Finding a half decent savings rate or a credit card worth opening can be tough, especially when lack of competition on the high street means the banks rarely launch competitive deals.

But if you look away from the traditional banks and building societies there are often some attractive deals being offered in places you might not expect.

Supermarkets, for example, are rife with good-value financial products, while peer-to-peer lenders are easily undercutting the banks. Here’s a round-up of the best places to put your money if you’re fed up with the high street.

Personal loans

There has been a lot of action in the personal loan market this year with the high street banks and building societies caught in a fierce competition to be at the top of the table.

But undercutting them all are loans from peer-to-peer lender Zopa and Sainsbury's Bank at 4.9%. They're the cheapest on the market for loans of between £7,500 and £15,000.

In joint third spot you’ll find M&S Bank, Clydesdale, Derbyshire Building Society and Yorkshire Bank with the slightly higher rate of 5%, although the M&S rate is only available to existing M&S Bank customers.

Our comparison tables show the full picture but here I’ve picked out the top five for borrowing £8,000 over five years.

Loan

Representative APR

Total amount repayable

Monthly repayment

Zopa Personal Loan

4.9%

£9,012.60

£150.21

Sainsbury's Bank Personal Loan

4.9%

£9,012.60

£150.21

Derbyshire BS Personal Loan

5.0%

£9,033.60

£150.56

M&S Bank Personal Loan*

5.0%

£9,033.60

£150.56

Clydesdale Bank Online Personal Loan

5.0%

£9,033.60

£150.56

Yorkshire Bank Online Personal Loan

5.0%

£9,033.60

£150.56

*Only available to existing M&S Bank customers

Compare personal loan rates

Savings

The savings market has hit rock bottom, with the top rates available currently sailing around the 3% mark. Even if you go for these ‘market-leading’ rates, you’re going to have to lock your money away for at least five years.

[SPOTLIGHT]Missing from the top of the savings tables is any sign of the high street banks. This is largely because of the Government’s Funding for Lending Scheme which has given these banks access to cheap loans. This means they no longer require customer deposits and therefore have no reason to launch competitive accounts.

Instead some smaller players have started appearing which normally wouldn’t have got a look in. Top of the easy-access accounts is BM Savings with a 1.70% account which has a bonus of 1.20% for the first 12 months. Next in line are four accounts at 1.60% from the AA, Coventry Building Society, West Bromwich Building Society and Earl Shilton Building Society.

In the short fixed-term market, Islamic Bank of Britain has an 18-month bond paying 2.02%, while National Counties Building Society has a two-year account paying 2.40%. For accounts over a longer term, Skipton and FirstSave are the market leaders at 3.50%, but they require you to lock your money away for seven years!

Secure Trust pays 3.11% on its five-year fixed-rate bond while Vanquis Bank and Shawbrook pay 3.10%. There’s not a high street bank in sight anywhere around the top of these tables.

Compare savings deals with the lovemoney.com comparison centre

Credit cards

Barclaycard dominates the 0% balance transfer best buy table with the Platinum card offering 30 months with no interest to pay on the debt you're transferring. In joint second place, the Tesco Clubcard Credit Card for balance transfers offers 28 months with no interest to pay on your credit card debt and a balance transfer fee of 2.9% of the debt you're shifting across.

Purchase and reward cards also feature heavily in supermarket card offerings. The Tesco Clubcard Credit Card for purchases has a 0% 16-month period on purchases. It also pays out one Clubcard point for every £4 spent. The Sainsbury’s Nectar credit card offers a similar range of rewards. It pays out ten Nectar points per £1 spent in Sainsbury's (up to £1,000 each month) in the first three months and one Nectar point per £5 spent elsewhere.

Find the right credit card for you at the lovemoney.com credit card comparison centre

The death of the high street

The banking sector is in dire need of some healthy competition. Recent events, such as Funding for Lending, now mean smaller players are starting to emerge. While the big banks refuse to bring out any savings account worth opening, smaller providers are popping their heads up and starting to get noticed.

Peer-to-peer lenders, for example, will soon be regulated, which means any money lent through the sites is protected under the Financial Services Compensation Scheme to a limit of £85,000 per banking licence. This is great news as it means savers and borrowers have a better option than relying on their normal bank for market-leading interest rates and cheaper loans.

Funding for Lending is a double-edged sword, helping borrowers get onto the property ladder on one hand and sending interest rates plummeting on savings account on the other. As someone with very little savings, I’m in favour of it for pushing up the mortgage market but as long as it exists, there will be little or nothing on offer from the high street banks.

Therefore this is a good opportunity for people to look further afield and get a better deal from a smaller player or even a supermarket. If this happened en masse it would give the big banks something to worry about and just might persuade them to start launching products worth opening.

This article has been updated to reflect recent changes in rates

More on savings:

Virgin Money launches market-leading Cash ISAs

Best buys that are only for banks and building societies' existing customers

The best fixed-rate savings bond rates

The best instant-access savings rates

The best Cash ISAs

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