The digital bank giving millennial savers a break
In the digital era that we live in, where financial products are popping up daily in order woo the millennial market, online bank Atom have just given us something to cheer about. Against the backdrop of low rates, they recently launched a new 1-year fixed savings account paying 2%. Given this is currently a market leading rate, it will be interesting to see how or even if high-street banks will react. For those that don’t know who Atom are, just ask Will.i.am. The singer has reportedly agreed to take on the role of a strategic advisor and investor to the app-only challenger bank.
What you need to know:
- It’s the first 1-year deal to pay you 2% since March 2016. You have to deposit £50 and the max you can wack in is £100,000. Importantly, you cannot deposit cash throughout the year - the window begins as soon as the account is opened and closes at 9am on the same day the following week. Why am I excited? Well, if you read my previous piece on how inflation can erode your savings, the 1.8% level we hit in January is lower than Atom’s 2% offering.
- This leads me to talk about your cash flow and personal situation - remember it is called a FIXED saver for a reason. Meaning, you cannot withdraw or transfer your cash until maturity. So, if you do need to access the cash in the short-term - be warned, whilst if inflation does start to creep up as analysts expect, your fixed rate of 2% becomes less inflation beating by the minute.
- Interest is paid annually or monthly, whilst my previous blog post on the personal savings allowance comes into play here as all interest is paid gross. If you are a basic rate tax payer you can earn £1,000 tax free, whilst this limit is £500 for higher rate taxpayers - cha ching!
- For those longer-term thinkers, they have a few other products on offer which provide longer maturities - a 2, 3 and 5-year fix offering 2.1%, 2.2% and 2.4% respectively.
- Are these rates sustainable in the long term? Only time will tell, however, they claim to have a lower cost base given they don’t have a physical presence as such, passing on this benefit to the saver - no branches and no huge call centres abroad, Atom are purely digital.
- The Financial Services Compensation Scheme gives you automatic protection on your savings up to £85,000 incase the challenger bank goes out of business. Good to know - as of 30 Jan 2017 this limit was increased by £10,000 due to GBP weakness since the EU referendum.
Atom are looking to disrupt the market, however, that does mean those who are less tech savvy may struggle with some of their features. For example, the app requires the use of things such as selfies for security purposes which isn’t everyone’s cup of tea. If this is your bag, there are plenty of worthy competitors out there including Monzo, Starling and Tandem bank. In the grand scheme of things, 2% rates might be laughable for those still reminiscing of the good old days before the financial crisis. However, for millennial savers it’s a positive change which will keep traditional banks on their toes as digital competitors snap at their heels.