Should you sign up to a cash savings website paying four times the best rates on offer from banks and building societies?
Cash savings websites offer exclusive deals that pay four times the best rates on offer with banks and building societies.
They have become increasingly popular among starved savers battling rock-bottom rates.
But City watchdogs warned last week that firms are not being clear enough about exactly how these services work – and the risks involved.
Cash savings websites which let savers spread their money around have become popular
The Prudential Regulation Authority and the Financial Conduct Authority have said providers must ensure information on savings platforms is fair, clear and not misleading.
And banks and building societies should make certain that platforms they use to sell their savings accounts are registered to do business in this country. Experts say the warning is to protect savers from falling victim to future scams.
Cash savings websites work with selected banks and building societies. In February, insurance giant Aviva teamed up with platform Raisin UK to offer a savings service.
Other well-established providers include Hargreaves Lansdown and Insignis.
The big advantage for savers is that you avoid what can be a laborious task of opening a new account each time you want to move your money to a new provider.
However, savers could find it takes longer than the typical seven days to get their money back, should the bank run into trouble.
When you make a deposit to a platform, the money is held in a ‘hub’ account. It remains there earning no interest until you select a savings account.
Rates on platforms change depending on how much money the providers want to attract. The big plus for branchless banks is that they can reach more savers.
Any money invested through the platform should be covered by both the savings provider, and the bank that provides the so-called ‘hub’.
Under the Financial Services Compensation Scheme, you will get back up to £85,000 should a bank go bust.
You get a separate limit per provider. But you must tot up the total amount you have invested in a bank direct and through the platform to ensure you do not go over the limit.
In the 12 months to March, savers added £126 billion to their easy-access accounts.
Yet big banks pay as little as 0.15 per cent on a one-year, fixed-rate bond, or 0.01 per cent on easy-access accounts.
You can earn 0.35 per cent on an easy-access account at Paragon Bank or 0.3 per cent at Coventry BS through Hargreaves Lansdown. There is also an exclusive, top 0.6 per cent one-year fixed-rate bond from Aldermore Bank.
Raisin UK has an exclusive 0.74 per cent two-year bond with Ahlibank, or 0.8 per cent with Sharia-compliant QIB.
All accounts are covered by the FSCS.
In response to the FCA and Bank of England letter last week Kevin Mountford, co-founder of Raisin UK, said: ‘We believe deposit aggregators play an important role in not only providing more options for consumers to access savings products safely and easily but also enabling banks and building societies to diversify their liquidity risk by offering another safe and reliable channel of deposit funding.
‘As a business, we already work to any banking partners due diligence processes and hold a large store of information on hand with regards to our set up and structure, along with our internal policies and procedures.
‘A large amount of this is passed to our partners as part of the onboarding process to ensure that the partner is comfortable with our setup and governance.
‘We welcome any regulatory transparency and oversight for deposit aggregation as we believe this would help standardise the industry and provide further protection to consumers along with clear guidelines for firms which operate in this space.’
Want a 1.18% rate on your savings?
Savers used to pre-financial crisis interest rates are likely rolling their eyes at rates which top out at around 0.45 per cent. However, thanks to This is Money, you can get more.
The money management app Chip has a special account which offers 1.25 per cent interest on up to £10,000, plus a £10 sign-up bonus for those who join in April.
After the app’s £16.50 annual fee is taken into account, that works out at an interest rate of 1.18 per cent on £10,000 of savings, a rate nearly three times the best easy-access rate on offer.
We explain the account in full here, but in order to sign up savers either need to be invited or to use a VIP access code, which This is Money has managed to obtain for our readers.*
> Find out more on the This is Money Chip+1 code here
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