Rising interest rates have prompted a tougher fintech savings battleground. Consumers are the winners.
Starling Bank has launched its first saving product, a one-year fixed term deposit account offering a 3.25 per cent rate.
The neobank, which will accept deposits between £2,000 and £1m, began rolling out the new product yesterday bringing it into sharp competition with other neobanks keen to cash in on rising interest rates.
Anne Boden, CEO of Starling Bank, said: “Starling customers can start saving instantly and receive guaranteed returns with our introductory 1-Year Fixed Saver while getting a full picture of their personal finances all in one app.”
Starling joins a growing list of fintech companies that have brought savings to the fore of their strategy this year.
A period of rapidly rising interest rates by central banks around the western world have re-ignited an overlooked area of competition in the banking world. Cash Savings.
Banks are able to deposit their cash with central banks for a return and therefore make money on how much they pay out versus how much they earn.
Atom Bank, the first app-only UK bank, was an ealy mover in February of 2022.
“In contrast to most banks, who continue to offer rock bottom rates to savers, we have increased the rates across our savings range for the second time this year. Savers have had it rough for a long time, and traditional high street banks have done very little to support them for many years.”
“The notion that many banks take away the umbrella just as it starts to rain is clearly illustrated by their reluctance to pass on the returns they are making and the recent base rate movements to savers,” he added.
More and more neobanks have joined the arms race in recent months.
Kroo, a budding new neobank, launched a 2 per cent interest bearing current account while rivals Chase - which is backed by JP Morgan - and Zopa both also offer similar deals.
It was the ninth time that the Bank of England raised interest rates after it first lifted them to 0.25 per cent from 0.1 per cent in December last year, boosting it to the highest level since the global financial crisis in 2008.
Higher interest rates mean banks can afford to offer savers more.
The phenomenon is also apparent in the US where interest rates also continue to rise.
Robinhood, the once home of the pandemic stock trading frenzy, this week offered a 4 per cent interest rate to its premium customers.
European neobank Bunq last week raised its interest rate from 0.27 per cent to 1.05 per cent, a nearly four-fold increase.
With rising inflation prompting rising interest rates for the foreseeable future, 2023 is set for further competition for savers' cash.