7 of the Best Challenger Banks for Modern Savers

Its official – bricks and mortar banks are on the way out.

Over the past two years, hundreds of local branches have been shut down for good, as High Street banks focus on growing their digital and mobile presences.

But a growing group of online-only banks have already beaten them to it.

These so-called ‘challenger‘ banks have been honing their business models for the past few years, winning over customers with their user friendliness and competitive rates.

In fact, without the cost of paying for property rent, business rates, and front of house staff, many of these online-only banks are able to offer much better savings rates than traditional banks.

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Here are just a few of the best digital banks for modern savers…

1. Atom Bank

Founded in 2014, Durham’s Atom Bank pitched itself as Britain’s first digital-only bank.

It was instantly popular, boasting 5,000 new sign-ups per day in 2016 and valued at almost £1bn by late 2017.

Users can apply for mortgages and save within the banks’ range of fixed-rate savings accounts.

2. Triodos

  • Best savings rate: 1.75 per cent (Fixed Regular Saver)

Described as a “100 per cent ethical” bank, Triodos only funds projects which promote sustainability, social equality and green energy.

It was founded in the Netherlands in 1980 but has since expanded into the UK, Germany, Belgium, and Spain.

Triodos offers a full suite of banking products, including current accounts, savings accounts, ISAs, and crowdfunding opportunities.

3. Fidor Bank

Fidor was founded in Germany in 2009 but won its UK banking license in 2016.

The company describes itself as a “community bank” which encourages members to share their own tips and stories about investment products – every time a user asks a question; £0.40 is added to their account.

Fidor Bank offers current accounts and crowd funding options, as well as its own short-term savings bonds.

4. Chip

  • Best savings rate: Variable – Up to 5 per cent

Like Fidor, Chip’s business model relies on customer engagement.

Rather than setting a series of fixed savings rates, all users start off with a rate of 0 per cent, and an extra one per cent is added every time they convince a friend to sign up.

Chip uses its own patented algorithm to work out how much you can afford to save, then it transfers these deposits automatically from your current account into the Chip app every few days.

However, deposits are capped at £600 per month, and the maximum interest rate available is five per cent.

5. Smile Bank

Founded in 1999, Smile claims to be the UK’s oldest online-only bank.

After rebranding in 2016, the company now offers a variety of banking products, from loans and mortgages, to insurance and current accounts.

Savers can choose between an instant-access account paying 0.34 per cent, a select access account offering 0.6 per cent, a range of ISAs paying up to 0.75 per cent, and a set of fixed-rate bonds paying up to 0.90 per cent.

6. Plum

  • Best savings rate: 3 per cent

Like Chip, Plum uses its own algorithm to calculate how much money you can afford to save each month, and then invests it via RateSetter, one of the UK’s largest peer-to-peer lenders.

Plum has estimated that savers will make an average of three per cent in interest through using the app, although this figure is likely to vary.

7. Paragon Bank

Paragon started out as a mortgage broker when it was founded in 1985, but last year it unveiled a complete rebrand which promoted its overall banking business.

While it continues to offer loans and mortgages, Paragon Bank has placed particular focus on attracting savers and account-holders.

As a result, it has some of the most competitive savings rates on the market.

Easy Access ISAs are paying up to 1.16 per cent, while Paragon’s fixed rate accounts are offering between 1.85 per cent and 2.40 per cent per annum.

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.