Alternatives to saving with the big banks
You can get a good return on your money or put it to good use in lots of different places.
The computer issues at the Royal Bank of Scotland Group and, more significantly, the interest rate fixing scandal at Barclays may have made you reconsider where you put your money.
I’ve already looked at Alternatives to current accounts with the big banks, but there are plenty of other options when it comes to your saving as well. Here are some of them.
The principle behind building societies is that they are run for their members – in theory at least. And when it comes to conventional savings, building societies regularly top the best buy tables.
For example, the Coventry Building Society’s Telephone Saver account currently tops the instant access savings tables. Meanwhile, Yorkshire Building Society’s Fixed Rate e-bond is the current table-topper for one-year fixed rate bonds.
Social or peer-to-peer savings
We’ve written a lot about these companies who provide a middleman between people looking to lend money for a return and those who want to borrow money but perhaps can’t from conventional sources.
You can look at an average return of 6%-8%, depending on who you’re willing to lend to and how long you’re willing to lend for.
There are a couple of things to bear in mind before you start lending. Firstly, there is a risk that the borrower might default and you lose some of your money. The good social sites will spread your risk and tell you how much bad debt you might expect, so you can factor that in.
The other point to note is that these businesses aren’t covered by the Financial Services Compensation Scheme, which guarantees £85,000 of savings in the event a business goes under.
'Ethical' banks and building societies
There are several UK banks that you won’t find on most high streets that have some sort of ethical goal, whether it’s community-focused or environmental.
The most well-known is the Co-operative Bank, which offers a variety of savings products. Indeed, its Fixed Term Deposit one-year bond is one of the most competitive on the market right now.
There is also Ecology Building Society, which supports environmental causes and the Dutch bank Triodos, which only lends to people and organisations it believes are “making a positive impact” on the world.
Charity Bank and Ecology Building Society are both members of the FSCS, while Triodos is covered by the Dutch equivalent, which guarantees savings amounts up to €100,000 (roughly £80,000 at today’s rates).
There are also Shariah-compliant savings accounts, which don’t pay interest but instead pay out a share of any profit on the money saved.
You can find out more about Sharia finance in Protect your money the Islamic way.
A credit union is a not-for-profit financial co-operative that borrows from and lends money to its members. They are run by volunteers. Some have been set up to help a particular area or community; others are open to groups of people with the same occupation (for example a police force) or interests. This is referred to as a ‘common bond.
If you want to join a credit union, you generally have to share that common bond with its members.
Many credit unions offer savings accounts, with the money saved then lent out to other members.
Traditionally, credit union savings accounts and ISAs only paid out a dividend once a year. However, recent changes to the law mean that they can now offer interest if they choose to do so.
Credit unions typically pay out less than bank or building society savings accounts but some do pay up to 6%. Savings are protected by the FSCS.
If you want to find your nearest credit union, there's a directory on the Find Your Credit Union website.
You can find out more in Credit unions explained.
Before you switch
If you do want to switch your money somewhere else, make sure there are no penalties that will cause you to lose interest. If you're going to lose a signifcant chunk of money, you're better off staying put for now.