Marcus by Goldman Sachs
Last week saw the launch of another new savings bank in the UK. Given that the UK market has seen around 40 new entrants since 2008, you could be forgiven for wondering what the fuss is about.
The launch of Marcus is significant though. It is part of Goldman Sachs, the Wall Street giant, which was set up in 1869 by Marcus Goldman. Named after its founder, it is the first foray in to the mainstream UK market by any major player. While it is believed that every major UK bank is working on a digital spin off, Marcus is the first large bank to make it to the market.
Not only is it the first, it has also caused quite a stir. In a market where the best buy on easy access savings was 1.37% from Kent Reliance, Marcus has stormed in with 1.50%. While this rate includes a 0.15% bonus rate for the first 12 months, it still merits a place in the best buy tables without it.
Most of the new entrants to the savings market have been interested in raising a few hundred million a year of the £1.5 trillion that UK savers have amassed. Those with larger appetites, the likes of Charter Savings, RCI Bank (owned by French car giant Renault) and Paragon, have sought to attract £1 – 2bn per year. In the US, where Marcus has been trading with a similar model, it has bought in around £10bn per year.
While it is difficult to contrast the markets, it isn’t unreasonable to assume, with such a strong rate, that Marcus has significant appetite. Indeed its UK Treasurer, David Bicarregui, is on the record as stating ‘we want to acquire significant deposits.’
Interest rates on savings accounts have been low for some time and rates are not being driven by base rate changes but by competition in the market. The problem is, the new banks don’t have enough appetite. Therefore, many come in and out of the market quickly to manage their inflows. Upwards price movement is driven by competition among them but there’s not enough appetite to sustain this to any significant level.
Given Marcus’ stated appetite for deposits, this could be a real shift in the market. Not only because of their own desire to attract savers, but because the competition are largely competing on price and will be forced to increase rates to respond. With such a stellar rate, others will be forced to respond if they wish to continue to grow their deposit books.
While the Marcus account can only be opened online, it has much going for it, aside from the attractive interest rate. The internet application is slick and easy to complete. The £1 minimum balance means it’s open to even the smallest of savers. It pays interest monthly, which will appeal to income seekers, and any change of interest rate comes with two months warning before it is implemented.
There’s a few irritants, like being forced to select an income band to complete the application and the lack of information on which date interest will be paid on. However, the process took less than five minutes for me to complete, by which stage I had an account number to transfer my initial deposit in.
If Marcus does have serious appetite to attract deposits, which we believe it does, and it maintains the attractive rate of interest, it could be a real game changer in the UK savings market.