We are seeing a continued growth of foreign banks coming to the UK. Moneysupermarket.com savings expert Kevin Mountford discusses whether we should put our savings into these foreign banks, and how the UK banks have responded...
Video Transcript
Hi, following the base rate reduction in December you may have read a lot about banks / buildings societies reducing savings rates, which suggests that there's no attractive products left in the market. Well let me tell you this is very much not the case.
I do accept that there are some providers - especially those that have got maybe a raft of savings products - do seem to make changes very, very quickly, which penalises existing customers. But to be fair and to balance this there are lots of attractive products available on the market, and what's even better is there are new ones coming on at a fairly regular basis and I guess there's a number of reasons for this. Banks are still keen to get retail deposits but I think the consumers and you the customer have woken up to the fact that in the current climate it actually makes sense to store a little bit of money away. So suddenly savings products became a really attractive acquisition opportunity for banks to bring new people on board so that's great, but what does it all mean?
Well there's also been quite an invasion of foreign banks over recent times and some of you may recall, but ING came into the market now about 4 or 5 years ago and that actually changed the landscape, so there are lots of foreign banks and most of these are conducting their business on a direct basis so it means that they have a low cost base and as such they are passing some of those benefits onto the customer.
If we look currently at the easy access tables we see the likes of ICICI in there - an Indian bank that are offering 6.41 per cent [AER] and have offered a consistently good rate ever since they have been in the UK. Its reported now that they have got about 100,000 customers, so they are getting that critical mass; and then the likes of Icesave - an Icelandic bank here in the UK. They have just celebrated their first birthday and again tens of thousands of customers are now working with them, so everything looks fine.
But on top of that we have recently seen FirstSave, as part of the Bank of Nigeria, they have a good strong product and very recently there is a new Icelandic invader - a bank called Kaupthing who are well established in Europe and they have now launched in the UK with a strong 6.50 per cent [AER] easy access product and this is actually supported with a number of good rate fixed products as well, so it all looks good.
I guess the question is should you be putting your money with these foreign banks and especially the nervousness we saw on the back of the Northern Rock situation towards the end of 2007.
My advice would be that these are regulated by the Financial Services Authority and as such will form part of the compensation scheme, so up to £35,000 you should be fine. The other thing to check is that they do subscribe to the Banking Code because that ensures that there are good practises which clearly benefit the customer in all this.
So, generally you are fine. I think that they have proven that these banks are here and here to stay and the good news is that it creates a lot more competition.
But that said the UK banks are coming back with a vengeance, Alliance and Leicester have got 6.50 per cent [AER] and that has been a number one product for quite sometime now, and then recently one of the Building Societies - West Bromwich - thought they would have a piece of the action and they launched a 6.55 per cent [AER] product.
So lots of competition out there, there are some great fixed bonds - nearly 7 per cent [AER] is available. What I would say is the uncertainty in how long this will last, if you're seriously considering doing something I would be doing it now.
Thank you.
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