I was searching for a new savings account online and I saw a fairly decent rate being offered by a company called Raisin. I’ve never heard of it before, and was quite confused about how it works. It says that I can have lots of different accounts all held in one place. Should I be using a service like this?
Anonymous, via email.
Savings accounts aren’t usually a hotbed of innovation. You tend to get a few types – easy access, fixed-rate and regular accounts, all paying increasingly low levels of interest.
However, in the past few years we’ve seen the emergence of ‘savings platforms’, offered by some new firms, such as Raisin, as well as established financial services giants, like Aviva and Hargreaves Lansdown.
The best way to describe would be like a concierge for your savings. They are generally online services that narrow down the pool of savings providers and help you find an account that meets your needs and goals. They are designed to take the hard work out of searching for the top rates, and even feature exclusive savings deals you won’t find anywhere else.
All of you savings can be managed on the platform, meaning you don’t have to have dozens of account log-in details, and you’ll be notified when fixed-rate, fixed-term deals are maturing, or when your rate is about to drop.
I’d say that convenience is a major plus point of these services, but there are some downsides. The savings platforms skim some of the interest from the accounts being offered on their sites as a charge to the provider to feature. This means you may see a lower rate of interest compared to getting the account direct. And there are often minimum levels of deposit. Raisin, for example, requires a minimum initial deposit of £1,000.
If you were to go ahead and save using on of these platforms, you need to familiarise yourself with something called a ‘hub account’. This is where your money is stored when it hasn’t been placed in a savings platform, where your annual interest would be paid and where the sum from a matured bond would be sent.
Although these accounts are offered by the savings platforms, they’re usually provided by an underlying bank. For example, Hargreaves Lansdown has a hub account with Barclays bank. As Barclays is an authorised and regulated bank in the UK, up to £85,000 of your savings will be covered by the Financial Services Compensation Scheme if the worst should happen and Barclays goes bust.
This is critical. The Financial Service Compensation Scheme protection is a vital safety net for savers. It means that when a regulated financial institution fails, your savings don’t disappear with. But given that a savings platform is intermediating between you and a regulated savings provider, the situation is a bit more complex. As we explain in our comprehensive guide at which.co.uk/savingsplatforms, with “deposits that are held in your name, or on trust, where you remain absolutely entitled to the funds, you could still claim up to £85,000 in compensation. However, if the savings platform itself fails - as opposed to a bank or building society - the Financial Services Compensation Scheme says they generally won’t be able to compensate, as the service provided by the savings platform is not a regulated activity.”
So you need to do some due diligence and ensure that the savings provider, not the platform itself, is holding your savings – whether it’s an interest-paying account or a hub account.
You should also ensure that the level of savings you hold with your hub account provider and with the same provider outside of the savings platform doesn’t exceed £85,000. In the example above, this would mean holding less than £85,000 on Hargreaves Lansdown’s savings platform and Barclays combined.
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