If you don’t want to bank with one of the big five banks, what are the alternatives? There are quite a few to consider – here’s a quick guide.
There are several different options if you want to switch from one of the big five high street banks (Barclays, HSBC, Lloyds, NatWest/RBS and Santander) and there are pros and cons to each:
It also includes M&S Bank, which does offer two different types of current account. The bank is wholly owned by HSBC.
Metro bank launched in 2010, vowing to do things differently. It has over 30 branches – mostly in and around London.
Virgin Money offers current accounts alongside a range of other products.
– A building society: not all building societies offer current accounts although the largest ones (including Nationwide and Yorkshire building society) do. The advantage of a building society is that it’s a mutual organisation, which means it’s owned by its members (there are no shareholders) and just because the organisation is owned by its members doesn’t guarantee it will be run well or entirely in its members’ interests.
SAVVY TIP: You won’t necessarily avoid the whole issue of high pay and bonuses either. Nationwide has come in for some criticism for its executive pay, with three execs earning more huge salaries and getting large pay rises despite missing some key performance targets.
– An ethical bank: The Co-operative bank is the biggest and best known ethical bank and it also owns the Smile internet banking brand. These both offer current accounts. However, the Co-operative bank hit the headlines a few years ago for all the wrong reasons after a huge black hole was discovered in its finances.
– Other ethical banks or building societies. There are other ethical options, but none of them offer current accounts, although they do have a range of savings accounts and/or mortgages. They include Triodos bank, whose parent company is based in the Netherlands. It’s been operating in the UK since 1995 and it offers a range of savings accounts including cash ISAs. Triodos has current accounts for ethical/responsible businesses but not for individuals.
SAVVY TIP: Triodos Bank is planning to offer personal current accounts from 2017.
Ecology building society specialises in lending mortgages for sustainable building and refurbishment projects but it also has a range of savings accounts. Charity bank is a registered charity and bank which lends to projects that would find it hard to get traditional funding. It offers savings accounts including cash ISAs.
SAVVY TIP: Triodos’s website lists every business it lends money to so you can find out exactly who your money is supporting. Ecology building society doesn’t launch any new products that existing savers can’t access and it doesn’t use introductory or bonus rates.
– A credit union: there aren’t that many credit unions in the UK and not all of them offer current accounts. Credit unions are owned by members and run for them. They offer low interest rate mortgages and some savings products. The Association of Credit Unions has a list of credit unions that offer current accounts on its website.
– Peer-to-peer lender: these can only be used for saving (really it’s lending rather than saving) and borrowing. If you want to save with a peer-to-peer website, you lend your money borrowers looking for loans and your cash is split between a number of borrowers (to reduce the risk if any don’t pay). You can find a peer-to-peer lender on the Peer-to-peer Finance Association website. You can read my article on Saving with a peer-to-peer lender; are peer-to-peer savings safe? and borrowing with a peer-to-peer lender.
SAVVY TIP: Peer-to-peer lenders are regulated by the Financial Conduct Authority (FCA) and so you can complain to the Financial Ombudsman Service if you have an unresolved complaint. However, any money you’ve lent out via a peer-to-peer lender aren’t protected by the Financial Services Compensation Scheme.
What to think about
If you want to move banks, here are a few things to consider.
1. You don’t have to move all your banking to the same bank. If the flurry of IT breakdowns that besieged a few of the high street banks a couple of years ago has taught us anything, it’s that it may be a good idea to split your banking so you can access some money elsewhere if there’s a problem.
2. Check how your money is protected. Banks and building societies that operate in the UK normally have to be authorised directly by the FCA. That means your savings are protected up to a limit of £75,000 by the Financial Services Compensation Scheme if the bank or building society fails (although this limit can be split between brands owned by the same bank). This applies to the smaller building societies and to credit unions. Charity bank and Ecology building society are directly regulated by the FCA and so covered by the Financial Services Compensation Scheme.
SAVVY TIP: Some financial institutions based in the European Economic Area can be indirectly regulated by the FCA (the system is called ‘passporting’) which means they can be covered by their home country’s savings protection scheme. Triodos is covered by the Dutch compensation scheme.
3. Switching is quicker. You can switch your bank account within seven days once you’ve opened your account with the new provider. There’s also a promise hat if any of your direct debits or standing orders go to the wrong account, your new bank must sort it out.
There’s more information about where you can move your money on the website Moveyourmoney.org.uk.
If you’re interested in green and ethical options, I’ve written a book called Green Money; how to save and invest ethically
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