Cash savings: A fintech David and Goliath tale for 2023

Neobanks are going head-to-head with their big bank rivals (and each other) in the savings market as interest rates hit their highest levels since 2008.

Image source: Pexels/Maitree Rimthong

Cash is king in the fintech startup world.

While this normally refers to the importance of not running out of the old stuff, it’s also true as a customer acquisition strategy.

Neobanks, and their Big Bank rivals, are increasingly targeting customers’ cash deposits with market-leading prices for cash in a battle of ever-increasing intensity.

At a time when banks are finally coming under scrutiny for not passing on the increased interest rates they charge borrowers to those they pay savers, this could mean a hugely changing landscape for neobanks’ growth rate.

At the end of 2022, I covered what amounted to a “fintech austerity arms race,” but things build even faster in the first six weeks of the year.

In January, Zopa revealed that the FTS savings account attracted £1 billion in 30 months, while the Smart Saver account attracted £2 billion in less than 11 months.

It took just 6 months to reach £1bn, and just over 4 months to double it again to £2bn, showing an accelerating trend. Zopa customers have now opened 150,000 savings accounts in total.

In January, UK digital bank Kroo became the only UK current account to offer more than 3 per cent AER interest on balances up to £85k.

At a rate of 3.03 per cent, Kroo has been inundated with new business, helping it break ground against the likes of Monzo and Starling, which now have several years’ advantage in luring customers away from high street banks.

Tandem has also increased the savings rate with customers “invited” to add a top-up to 2.75 per cent.

Not to be outdone, JP Morgan’s digital bank Chase also increased its own savings account rate to 3 per cent, a touch below the fiercest fintech competition, but still very competitive given that it allows up to a staggering £500,000 of savings at the new rate, five times more than Kroo.

“We want to help savers make their money work harder while offering a simple and straightforward way to save. By increasing the price of our linked savings account, customers can manage and access their savings in a way that suits and supports them in reaching their savings goals,” Shaun Port, managing director of Everyday Banking at Chase.

JP Morgan’s challenge makes it one of the highest-yielding savings accounts on the market, from a non-starter bank, but what’s driving the overall trend?

Of course, with the Bank of England’s recent interest rate hike to 4 per cent, banks can afford to be competitive. But not everyone seems to be. Is there more to it?

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says that despite the cost of living crisis, many cash investors are still looking for a return on their cash.

“We are still sitting on savings in lockdown. Although rising prices have damaged our financial resilience, the HL Savings & Resilience Barometer shows that, on average, we are still better off than before the pandemic hit, she said.

“Unfortunately, lumpy distribution of both savings and higher costs means that those with above-average incomes will be better off and those earning less than average will be worse off,” she added.

The trend of fintechs and neobanks using cash savings accounts to grow not only benefits consumers, but also pushes traditional banks to innovate and remain competitive.

This is a positive development as it leads to better services and better prices for consumers. With the growth of fintechs and neobanks, consumers no longer have to settle for low-interest savings accounts and can now take advantage of high-return options

The trend of fintechs and neobanks using cash savings accounts to grow is a sign that much-needed competition is finally coming through.