Consumers in the UK are getting much better deals on savings accounts, certificates of deposit, credit cards and personal loans than we are in the US. I used to live in London, and returned this past week to visit friends and former colleagues. Every weekend, The Sunday Times publishes a “Best Buys” table for personal finance. As I reviewed the list, I was amazed at how much better the deals are on the other side of the pond.
Savings Accounts & CDs
If you do not have a lot of money, you can open a savings account in the UK at Paragon Bank and receive a 1.46% interest rate. If you have a bit more money and are willing to leave it in a CD for five years, you would receive 3.15% from Agri Bank.
In the US, the deals are much worse. The best savings account with no minimum deposit is MySavingsDirect, offering 1.10%. And if you have at least $10,000 in a five year CD, you can get 2.45% from eLoan.
Credit Cards
Balance transfers are popular in both the US and the UK. But in the UK, you can receive a 0% rate for 37 months from Barclaycard or Virgin Money. In order to get the 37 month deal, you would have to pay a 2.5% fee. Oddly, Virgin even gives a free case of wine when you apply for the credit card. The longest offer in the US is from Santander, which is offering 0% for 24 months. However, you need to pay a 4% fee in order to get that rate.
Credit cards also provide introductory 0% offers on purchases. In the UK, you can find 0% on purchases for up to 27 months, whereas the longest deal in the US is from Citi, with its Simplicity Card. Citi offers no interest on purchases for 21 months.
Personal Loans
The personal loan market has been growing rapidly in the US, thanks in large part to the marketplace lenders in Silicon Valley. Today, you can get a personal loan with a variable rate as low as 4.05% from SoFi, which offers some of the best rates in the country. Competition has been heating up in the US personal loan market. An overview at MagnifyMoney (my website) shows that the low interest rates are coming from new marketplace lenders, not from traditional banks.
However, the rates are even lower in the UK. Fixed interest rates for loans start as low as 3.5%, as you can see from a leading price comparison website. The lowest rate of 3.5% is offered by Zopa, a marketplace lender. However, traditional banks are offering rates as low as 4.4%, forcing the prices of the innovators even lower.
Three Reasons It Is Cheaper In The UK
Banking should be cheaper in the US. Banking is a business of scale, and the US market is much larger than the UK market. By definition, the marginal cost of a consumer at a large bank in the US is less than the cost in the UK. But that value is not being passed along to consumers.
Why are consumers in the UK getting such a better deal? It is certainly not regulatory pressure. Regulators are not telling banks to increase savings account interest rates or extend 0% promotional offers. Having lived and worked in both places, I think there are three key drivers.
- The UK public uses "Best Buy" tables on price comparison websites to make financial decisions. Price comparison websites are well-known consumer brands, and they rank products based upon the value to their consumers and not the commission paid by the providers. UK consumers have very low trust in banks, preferring to turn to trusted price comparison websites instead.
- Bank management teams have understood that they have to compete on price. Over time, traditional advertising has become less effective. I know that, because I used to run a large credit card division in London. We knew that in order to win market share, it made more sense to invest in the product (by making the offer better) rather than invest in television advertising.
- Levels of financial literacy are higher in the UK. In a recent 6 nation study conducted by MagnifyMoney and a professor Emeritus of Stanford University , the UK scored the highest, with 51.90% showing a high level of financial health. The US scored 33.20%.
Things are changing in the US, particularly with tech-savvy millennials who do not have the same loyalty to large financial institutions. People are increasingly going online to research the best financial products. Websites like NerdWallet and MagnifyMoney help them make their decisions, ranking products based upon value. New startups are increasingly designing products that provide superior customer value. But we still have a long way to go to increase financial literacy. I recently taught a financial literacy seminar at Brooklyn College. And, once again, the overwhelming response was that students wanted access to this knowledge earlier. Technology and tools will help, but early education remains critical.
Nick Clements is the Co-Founder of MagnifyMoney.com. Previously he was a Managing Director at
