Two new digital-first challenger banks could be about to disrupt the UK savings market, at a time when high street banks are paying their customers just 0.01% AER.
JN Bank is the first Caribbean bank to be awarded a full UK banking licence, and its range of fixed-term and instant-access savings options are open now.
Then there’s Monument Bank, which is aimed at customers with a high net worth, and set to open in early 2021.
But should you transfer your savings to a bank you’ve never heard of?
Here, Which? looks into what these new banks have to offer and how their savings products compare to the rest of the market.
What does JN Bank offer?
JN Bank is the first Caribbean bank to be awarded a UK banking licence. It has a flagship branch in Brixton, south London, but customers throughout the UK can open and manage products online.
It currently offers an instant-access savings account and a range of fixed-term savings accounts ranging from one to five years.
It also offers personal loans, where – according to its website – you won’t be penalised for making early repayments, ‘however many you make’.
To open a savings account, you must be a UK resident over the age of 18, with a UK phone number and email address, and a UK bank account you can make transfers to and from.
To qualify for a personal loan, you must be over the age of 21 and have been a UK resident for more than two years, with a minimum monthly income of more than £1,000 after tax. Self-employed applicants must have been established for more than 12 months. You must also have a UK phone number, email address and a UK bank account with a direct debit facility.
JN Bank is owned by JN Group, a mutual organisation based in Jamaica.
How does JN Bank’s savings rates compare?
At the time of writing, JN Bank offers the following savings accounts:
|JN Bank savings account||AER||Terms|
|Five-year fixed-rate||1.3%||£1,000 minimum initial deposit|
|Four-year fixed-rate||1.25%||£1,000 minimum initial deposit|
|Three-year fixed-rate||1.2%||£1,000 minimum initial deposit|
|Two-year fixed-rate||1%||£1,000 minimum initial deposit|
|One-year fixed-rate||0.8%||£100 minimum initial deposit|
|Instant-access||0.1% on balances of less than £1,000; 0.55% on balances of more than £1,000||£1 minimum initial deposit|
While none of these rates are currently market leading, they are competitive and offer well over average. According to Moneyfacts, the average rate for a one-year fix at the time of writing is 0.68% AER – which can easily be beaten by JN Bank’s 0.8%.
Similarly, the average long-term fixed-rate account (that is, accounts that are fixed for 18 months or more) pays 0.93% – a rate exceeded by all of JN Bank’s accounts from its two-year fix upwards.
With the exception of the one-year account, you’ll need to save at least £1,000 to get a decent return with JN Bank – a requirement that’s common among top-rate accounts. While it’s possible to open its instant-access account with just £1, the AER you’ll get is below the average of 0.23% if you save less than £1,000.
- Find out more: how to find the best savings account
What does Monument Bank offer?
Monument Bank is aiming its digital-first services at those with a personal net worth of between £250,000 to £5m (excluding their main residence), principally professionals, property investors and entrepreneurs.
It has identified 3.5 million people in the UK that come under this bracket, to whom it will offer savings accounts and buy-to-let and bridging loans of up to £2m.
Unlike other banks, which often reserve the best deals to reel in new customers, Monument says it will reward customer loyalty; those who repeat a fixed-term savings account or renew a loan will get a better rate than a new customer.
The bank has been granted an ‘authorisation with restrictions’ UK banking licence, which means there is a limit to how much business it can take on until it’s fully operational.
How does Monument Bank’s savings rates compare?
As Monument Bank is yet to launch, its savings accounts have not been confirmed.
However, a spokesperson told us that a range of accounts will be on offer, from instant-access to fixed terms, and that rates will all be competitive – improving with loyalty. You’ll need a minimum initial deposit of £25,000 and you can manage the accounts online or via its app.
How to make sure your savings are safe
Among the most important things to check when considering moving to a new bank – even if it’s one you’ve heard of – is whether your money will be covered by the Financial Services Compensation Scheme (FSCS).
To be covered, a firm must be authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) – this grants cover of up to £85,000 per person, per banking institution.
Note that this cover is not per bank – so, if you have more than £85,000 saved across different banks that come under the same banking institution, the excess won’t be covered in the event it goes bust.
For instance, Lloyds Banking Group includes Halifax, Lloyds Bank and Bank of Scotland, so ideally you shouldn’t have more than £85,000 saved between these banks.
- Find out more: The FSCS – are my savings safe?
What is a challenger bank?
Challenger banks are typically online-only banking brands that are seeking to win customers from the more traditional high street stalwarts.
While the likes of Metro Bank and TSB technically count as challenger banks, people tend to think of tech start-ups such as Monzo, Revolut and Starling.
Challenger banks tend to offer perks – the technology they use tends to be more modern than bigger banks and the fact that they don’t have to fund any branches means customers can often benefit from lower fees or better rates.
However, there is also the risk that the bank will fail or stop its service. Loot, a digital current account aimed at students, launched in 2014 and went into administration in May 2019, while German bank N26 pulled out of the UK in April 2020 due to Brexit.
- Find out more: challenger and mobile banks