The big four high street banks – that’s Barclays, Lloyds, HSBC and RBS – have had their fair share of scandal over the years and many people have been left disgruntled with the service they’ve received. There’s been a lot of inertia in banking, with few people willing to move their main account. Nearly 60 per cent of people have had the same current account for over 10 years.
But not only has the government made it easier to switch banks – everything has to be moved across on your behalf in under seven days – but there's also more choice than ever.
The term “challenger bank” generally refers to any bank that isn’t one of the big four. Some are old and established while others are brand new, but they’re all regulated and are taking market share with competitive rates and better service.
Comparison sites such as Gocompare .com and Moneysupermarket.com both have rankings of the best banks for current accounts, savings and mortgages.
Here’s a smattering of the best challengers for different customers.
ONLINE ONLY BANKS
A number of new banks are challenging the industry with plans for online-only and app-based services. Atom Bank, Tandem, Mondo and Starling are all works in progress and worth watching for the innovations they come out with.
At the moment, Atom Bank has been clearest in its plans. It will allow customers to log into their accounts using face scans and voice recognition, perhaps by saying a set phrase into the banking app. It will use technology similar to that deployed in airports, as facial features – such as the distance between the nose and mouth – and speech patterns are virtually impossible for fraudsters to imitate. This will be attractive to those irked by the layers of passwords and memorable information needed to check their online banking.
Atom Bank has only one product so far, a savings account with one or two years’ fixed term. It’s paying 2 per cent annual interest on the one-year product, and slightly more on the two-year. Current accounts, credit cards and mortgages will be coming out during the year.
Less well known but well established and carving out a niche in ethical finance is Triodos Bank. It offers all the usual savings and current accounts, and is particularly good with ethical investments – helping customers grow their money in a way that’s good for people and planet.
Read more: How to get started with ethical investing
The Co-operative Bank’s another one which isn’t disrupting the market with new gadgets, but is offering something different. It’s ethical stance is core to the business and it’s currently offering one of the best available perks for people switching over to its free current account.
It will give new customers £150 provided they carry over at least four active direct debits and meet other conditions. A similar deal is offered at Smile.co.uk, part of the Co-operative Bank.
FOR FREQUENT BRANCH VISITORS
People who like to visit their branch frequently could look at Handelsbanken. Not a challenger bank in the sense of being new, this is a giant in Sweden and has nearly 900 branches across Scandinavia. Founded in 1871, it’s been in the UK for over 30 years and, having grown to 200 branches around the country, customers see it as a real alternative to the big four.
One quirk of Handelsbanken is that it doesn’t advertise rates for mortgages and other products, although there are indicative rates on the website. That’s because it aims to offer a personal service where branch managers know each customer and set rates based on their circumstances.
Another contender is Metro Bank. It launched nearly six years ago and part of its service is to have branches with longer opening hours. There are 40 across London and the commuter belt, and all stay open every day of the year except Christmas Day, New Years Day and Easter Sunday. Opening times for branches are 8am-8pm. The strategy's working, as it now has 650,000 customer accounts.
OakNorth Bank launched in September last year and focuses on lending to entrepreneurs and small businesses which the big four won’t consider. Banks often take months to give a decision on whether they'll lend, but OakNorth says it speeds up the process.
It’ll lend between £1m-£15m and also offers property finance and savings accounts for businesses. Applications are made online, but once a relationship is established bank meetings can be held either at their London offices, or they will come to you.