‘Bank on Dave!’ strikes the right note with Britain’s disgruntled, disgusted bank customers. Savings rates look juicy - but there’s a catch.
Anyone watching Thursday night’s Channel 4 show ‘Bank of Dave’ cannot help but admire Dave Fishwick. Fed up with the practices of the big banks, this energetic minibus millionaire is taking on the establishment by setting up his own lending operation in Burnley.
Dave’s bank isn’t a real bank - he’s had to use ‘Bank on Dave!’ to avoid legal issues. In fact, his plucky operation is really called the Burnley Savings & Loans. It has a licence to lend, but not one to take in deposits.
Mr Fishwick is really operating what is known as direct lending, or peer-to-peer lending. His service matches savers to borrowers and promises 5% to those willing to put money on 30 day notice or tie it up for one year.
If either of these savings options were ‘proper’ bank accounts (and we don’t mean to be rude, it’s just a legal distinction) they would top our Best Buy tables.
It is with some regret that we aren’t including them but let us explain our reasons why. Firstly, Burnley savers are effectively entering into an agreement with borrowers. Interest rates look good, but depend on borrowers repaying interest on time and eventually repaying their loans in full. There is a risk therefore, but this is where ‘Bank on Dave’ has added a useful innovation.
Dave Fishwick promises:
‘All your money is fully guaranteed, because if the borrower defaults on their finance agreement, there is a 100% guarantee from Mr David Fishwick in relation to this element of the loan.’
Dave’s putting his money where his mouth is - a good thing. But his guarantee is our second point of concern. His personal guarantee is welcome, but a guarantee is only as good as the ability to repay, come what may. That’s why, even given all their obvious failings, the fact that the banks are covered by the Financial Services Compensation Scheme (or the European equivalents for the likes of ING Direct), does provide hugely valuable reassurance.
Other operations work on similar lines. Re-Give, a mutual society, offers a 5% one year bond. And in its own words – ‘moves, lends, invests and protects money in an ethically, socially and environmentally responsible manner (both strategically and tactically, for the short term and for the long) for its customers, clients and savers worldwide – enabling them to do well while doing good’. Likewise, it is not covered by the FSCS - nor by the Financial Ombudsman Service if you have a seriously unresolved complaint. It can offer such a good rate because it is low cost and has no fancy branch network. Presumably too, it hasn’t been paying Bob Diamond-sized salaries and bonuses.
Re-Give says investor money is ring-fenced, so safe even if it itself goes bust. It says that not having that FSCS safety net means it is ‘exceptionally careful, extra vigilant and especially prudent when looking after the funds under our management’. What is more, Re-Give says, there is no cap involved, whereas the FSCS cap is currently £85,000. But beware, in the small print neither the interest rate or return is guaranteed.
We like these ideas but only you can decide whether to risk having no FSCS in exchange for rates that are one third higher than our Best Buys.