A new challenger bank has launched in the UK today, but any money saved with it isn't covered by the Financial Services Compensation Scheme (FSCS) protection, so how good is it?
Fidor Bank is an online-only bank established in Germany in 2009. Today it's launching a current account and six fixed savings accounts in the UK, with more products to follow in future.
All its accounts are accessed online or by telephone. The bank has no branches.
But crucially, the Fidor Bank isn't covered by the UK's FSCS protection, which currently covers up to £85,000 worth of savings per financial institution if your bank went bust (this limit will drop to £75,000 from January 2016).
Money held with Fidor Bank is however covered by a similar German scheme called EdB, which protects funds of up to €100,000 and is backed by a federation of German banks.
Fidor isn't the first foreign-owned bank to launch in the UK in recent months – Renault (yes, the car manufacturer) launched RCI Bank in June, which currently only sells savings accounts including an easy access savings account offering 1.65% AER. It too falls outside of the UK's FSCS protection, although money saved in it is protected by a similar French scheme.
See our Savings Safety guide for a full break down detailing which providers are covered by FSCS protection, and which providers share protection eg, HSBC and First Direct.
How does Fidor Bank's current account compare?
Here are the key features of Fidor Bank's 'Smart Current Account':
- No credit check is required to open the account meaning almost anyone can get it.
- You don't need to pay in a minimum amount each month, or set up any standing orders or direct debits.
- It pays everyone 0.25% AER gross in-credit interest on funds. Unusually, the more 'likes' the Fidor UK Facebook page receives, the higher the interest rate will rise. This maximum it will increase to is 0.5% AER gross when its page gets at least 10,000 'likes'.
- It doesn't however have an overdraft facility, although Fidor Bank confirms an overdraft facility will be introduced in the coming months.
- You can also transfer up to £25,000 per day to EU or EEA countries for £2.49 per transfer.
However, you can earn much more elsewhere such as up to £150 as a switching bonus, or up to 5% AER gross in-credit interest. See our Best Current Accounts guide for a full round down of all the best buys.
The European transfer fee is £2.49 per transfer of up to £25,000. While good, it can be beaten. See our Sending Money Abroad guide for more options.
The account may appeal to someone looking for a basic bank account where no credit check is required, as the majority of these do not offer in-credit interest. However, even here it can still be beaten – the Virgin Money Essential account pays 1% AER gross interest. See our Basic Bank Accounts guide for the best buys.
How do Fidor Bank's savings accounts stack up?
Fidor Bank is offering six savings bonds ranging in length from three months to three years and offering interest of between 0.75% AER gross (pre-tax) and 1.8% AER gross (pre-tax).
The catch here is that to get one of Fidor Bank's savings bonds, you must hold its Smart Current Account, and you must pay in a minimum deposit of £100 (maximum £100,000).
However as the German EdB protection scheme only covers up to €100,000, anything saved in it above £73,100 (using the exchange rate of £1= €1.37 at 1pm on 18 Sep) wouldn't be safe.
But either way they can all easily be beaten by other accounts already on the market. For example, you can currently earn interest of between 1.85% AER and 2.55% AER if you fix your savings for between 95 days and three years. See our Top Savings guide for all the best buys.
Is there anything else I need to know?
The bank has an online community forum with various monetary bonuses ranging from 5p to 50p, which customers receive depending on how involved they are within the community. It also offers a £2 referral bonus for each new customer recommendation you make.
So overall, is it worth the risk?
Given that the bank's current account and savings accounts can be beaten by other providers that do have UK FSCS protection, it's highly unlikely to be worth switching for.
Helen Saxon, money desk leader at MoneySavingExpert.com says: "It's good for competition in the banking market that a new challenger bank has launched, even though it's not yet offering any best buy products.
"However, any savings deposited with it are covered by the German saving safety scheme, and not the £85,000 UK savings safety guarantee. Given that, while it's likely your money is safe, you're reliant on a foreign scheme."