A vampire squid reformed

Long-serving members of the financial services industry will probably yawn. Over the years there has been a regular supply of new entrants promising to shake-up the savings market.

Do you remember ING Direct, for instance? The UK-subsidiary of the Dutch banking giant offered rates that smashed the best-buy tables for a while. Aggressively targeting the best-buy tables with market-leading interest rates helped it attract millions of savers.

Now? It was bought by Barclays six years ago, meaning those savers who had initially been attracted by great rates are now presumably enduring the same paltry returns that the rest of Barclays savers’ endure.

Or what about Icesave? That was the internet-only offering from Icelandic-bank Landsbanki that offered stunning rates to savers in the couple of years before the financial crash.

Likewise, it too aggressively targeted the best-buy tables with market-leading interest rates and, naturally, attracted billions of money from UK savers. That, of course, ended much more badly when the bank crashed and was taken over by the Iceland government forcing the UK government to bail out British savers, although Iceland later repaid the debt.

There are others, many of which I am sure you recall with a shudder.

Aggressively targeting the best-buy tables with market-leading interest rates helped Icesave attract millions of savers.

This week’s new offering comes from the United States and is not just from another bog-standard US bank – it is from the world’s biggest and some say most notorious investment bank.

Infamously dubbed a “vampire squid” by Rolling Stone magazine, Goldman Sachs is making its first retail foray into the UK with a brand new bank.

Marcus is named after one of the bank’s founders Marcus Goldman. It has already been operating in America for a couple of years and has been hugely successful on the back of market-leading savings rates.

It is expected to adopt the same approach in the UK, aggressively targeting the best-buy tables with market-leading interest rates. Sound familiar? It seems a certainty that pretty soon clients, family and even people down the pub will be asking you: “What’s that Marcus Bank? Is it safe?”

What will you say? Is it wise for people to move their nest eggs to the latest institution buying their custom? On the other hand, is it foolish for folk to leave their cash in mouldering old savings accounts that offer stinking returns?

The truth is that if there was ever a market waiting for a disruptor, savings is it. Keeping cash in a safe but growing environment is important for millions of normal folk. But with returns simpering along at less than 1 per cent for most of the last decade since the financial crash, it is hardly surprising that many are looking for different homes for their rainy day money.

Peer-to-peer lenders have made an inroad but, despite the returns they offer, they are not a savings institution and therefore not right for everyone. Sure, anyone who stashed some or all of their nest egg with, say Funding Circle, would have achieved returns approaching 5 per cent to 6 per cent in each of the past three years.

That is much more attractive than the paltry returns on standard savings accounts. But the accounts just do not offer the security that those who choose to stash their cash in a savings account require.

Many will have money in stock-market related investments and so are, presumably, comfortable with the idea of taking a risk with their cash. But most investors will also be conscious of the importance of having a secure home for some of their hard-earned money.

And that is the savings conundrum. A leaked email from inside Marcus Bank published last month suggested that the initial interest rate offered by the new bank would be 1.5 per cent.

While low, that is still a market-leading rate at the moment and it would be enough to attract a decent inflow of new customers, even though they would mainly be so-called rate-tarts.

But the savings market needs a much more serious injection to get people interested in it again.

It is important for people to save. Today’s savers are tomorrow’s investors and as their nest-eggs grow, they become much more engaged about their finances and more informed about their opportunities and challenges. Ultimately the lesson is learned that saving enables people to have opportunities and choices. And that becomes particularly crucial as people approach retirement. If they have adequate savings, most people will face a comfortable time in their later life. Without a financial cushion, the future will look miserable.

So I hope that Marcus Bank is not just another one-day wonder. Instead I hope it does shake up the market and create more interest in savings.

You should too; in fact everyone working in financial services should. We all need savings to become fashionable again so that people become engaged with their finances.

Once they do so, the demand for decent financial advice could grow. And that is something we would all applaud.

Simon Read is a freelance journalist