Britain is set to get a new savings bank by the end of this month. However, the company behind it isn’t new. Marcus is a subsidiary of Goldman Sachs, the American investment bank once known as the “vampire squid”. Goldman Sachs’ move to the United Kingdom doesn’t come as a surprise. Its savings bank, which was established two years ago, has attracted £15bn in savings so far making it a huge success. However, only time will tell if the bank’s launch will fall or revolutionize Britain’s savings market.
The savings bank is named Marcus after Goldman Sachs founder Marcus Goldman. Marcus has promised to give savers easy access to their savings account. The bank is also set to pay highly competitive rates on balances – between £1 and £250,000. Customers will be able to withdraw their savings as they like, free of charge without incurring any penalties. The bank is also planning to offer savers competitive interest rates consistently.
However, chances are this is merely a pre-promotion. When the bank launches, it will fail or succeed based on the interest rates it offers savers. Last month, the bank launched a pilot account offering 1.5%. If the public gets the same rate, it will be enough to push the bank to the top attracting a steady stream of savers.
ING Direct & Icesave
That’s a long established route for foreign banks. They buy market share by offering customers irresistible savings rate. However, the most interesting bit is what happens after the bank has already gotten a substantial market share. It’s good to look in the past and establish where Dutch-owned ING Direct is or Icesave from Iceland owned Landbanki.
ING Direct was able to attract millions of savers before being rendered obscure. Barclays eventually purchased the bank. Icesave collapsed during the financial crisis leaving the UK government with the responsibility of bailing out its customers billions of pounds they had stashed in the bank. Although Iceland repaid the bailout, that doesn’t take out the fact that the bank collapsed.
In a nutshell, the risk is clear, but eager savers are likely to overlook risk in hope for better returns. When that happens, Marcus could be on track to launch traditional current accounts and a credit card in the future making the bank a force to reckon.
According to The Savings Guru founder, James Blower, the UK has seen over 40 new entrants in the savings market in the past decade. All these entrants initially established a presence by offering attractive interest rates – “best buy rates”. Blower doesn’t see anything different with the Marcus entry.
If they launch with 1.5%, Blower sees a significant jolt in the market given 1.37% is the best rate currently being offered by Kent Reliance. Marcus could force Virgin, RCI, Shawbrook and Ford Money among other rivals to increase their rates which would translate to better returns for savers.
However, there are many barriers to success the most notable being trust. According to Savings Champion co-founder Anna Bowes, banks face significant challenges when launching. Unrecognised names don’t inspire trust. It takes time before savers trust new entrants and deem them legitimate. It’s also expensive for new entrants to gain traction according to Bowes.
However, Marcus appears to have an obvious advantage – the bank is part of Goldman Sachs which is already an established and trusted investment bank. Bowes feels Marcus has a unique advantage from the mere fact that it is linked to a powerful investment bank.
Other industry experts share her sentiments. One such expert is Sarah Coles, a personal finance analyst with financial services firm Hargreaves Lansdown. According to Lansdown, Marcus should be able to deal with any challenges given the savings bank will enjoy unlimited support from a “giant” in the industry. This is great news for savers according to Lansdown.
She stresses on the fact that savers in the UK have been faced with savings accounts with “strings attached” such as savers must limit withdrawals. Having many competitive and easily accessible savings accounts is welcome.
The importance of saving and better savings avenues in Britain can’t be overlooked given recent findings by Money Advice Service show that 40% of working adults in the UK have savings of not more than £100. Better saving avenues are bound to reduce Britain’s debt problem characterised by over-reliance on short term debt like payday loans.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.