In the last decade, the independent This is Money savings best buy tables have been dominated by challenger banks – many of which are not household names.
But the growth of some of these challengers has been startling. This month, Paragon Bank revealed it has reached £10billion in customer savings deposits, just eight years after launching its first savings account.
It is now home to almost 250,000 savers who can choose from a range of fixed-rate savings accounts, easy-access and cash Isa deals. It is also one of only five savings providers offering a cash lifetime Isa product.
Derek Sprawling, savings director at Paragon, has been with the bank since the beginning, having joined from Virgin Money in 2014.
Paragon Bank has reached the £10bn customer savings deposits milestone, eight years after launching its first savings account
He’s proud of how quickly the bank has reached the £10billion milestone, although he says he never doubted it would get there.
‘Aside from the big American banks, I don’t think there is a challenger bank that has gone from £0 to £10 billion in eight years,’ Sprawling told This is Money.
‘We always knew we were going to be this big because we were doing the right things from day one.’
As a bank that has regularly featured on our independent This is Money best buy tables, it is perhaps not surprising that Paragon has attracted so much cash.
There is currently more than £300billion in accounts offering rates of 0.1 per cent or less, according to the latest CACI data, which analyses the savings deposits of more than 30 of the biggest banks.
With so much cash languishing in savings accounts paying next to nothing, challenger banks like Paragon have led the way in offering savers a reasonable return on their savings.
Paragon Bank is no raw start-up, being a subsidiary of the Paragon Banking Group, which is a FTSE 250 company based in Solihull in the West Midlands.
Established in 1985, Paragon Banking Group has over £13billion of assets under management and manages over 450,000 customer accounts.
It specialises in providing finance for landlords and is among the top 10 biggest buy-to-let lenders in the UK.
It also supports British businesses across a range of sectors, from asset finance for SMEs through to development finance, funding the construction of new housing.
Derek Sprawling, savings director at Paragon, has been with the bank since the beginning, having joined from Virgin Money in 2014.
‘I didn’t just join a new bank in 2014,’ says Sprawling, ‘I joined a well established specialist lender. Paragon Bank was already a FTSE 250 company and already managed £10billion worth of loans.
‘It had been through the credit crunch and had come out the other side. So there was a level of trust running straight from the investors to the board through to the management team.
‘That solid footing and the fact we were not chasing any short term targets – such as trying to Initial Public Offering in two years – meant that we could put the foundations in place from day one. There were no short term distractions.’
Where does it stand out in the savings market?
Paragon Bank launched its cash Isa products in 2016 and since then has become recognised as an industry leader.
Last year it won the best cash Isa provider of the year at the Savings Champion awards. This year it won the best fixed rate cash Isa product of the year at the Moneynet awards.
It is currently offering the best easy-access cash Isa deal on the market paying 1.55 per cent.
Sprawling says: ‘We have made a point of pushing Isa rates more than anyone in the market over the past couple of years.
‘We’ve had record breaking Isa seasons for the last two years. I think it is because we make our rates best buys when people are actually looking for an Isa – around the end and start of the tax year – plus we keep our rates up for a decent amount of time.
‘We also introduced the flexible Isa feature with us which means you can take money out in the same year and put it back and you won’t lose your Isa status. This can be a great safety net in current times.’
How has Paragon done so well?
Sprawling puts Paragon’s success not down to just its ability to keep rates competitive, but also its relentless pursuit of customer feedback.
It receives roughly 1,000 customer survey results each month, which it uses to then plan changes to its site, service and products.
‘From day one we have always listened to what our customers tell us through the surveys and that’s informed many of the decisions we have made.
‘We send all our customers surveys every month. So every new customer gets invited to complete a survey, everyone does a survey when they leave and everyone does a survey when their fixed rate savings deal ends. And we have done that for years.
‘We invested in customer and market research probably before any other bank of our size would do.
‘When we had tens of millions of balances and hundreds of customers we were still doing surveys and looking at data to look for trends.
‘So we’ve got a huge backlog of change requests, which we’re working through. We’ve been compiling it for the last five years.’
What does the future hold for Paragon?
Paragon is hoping to attract customers away from the big banks by continuing to offer market leading rates and increasing its investment in digitisation.
‘The big opportunity for challenger banks like us is to motivate savers with the big banks to move,’ says Sprawling.
‘We are investing in digitalisation to boost convenience to ensure that it will be minimal effort for people to move their cash from the big banks to us.’
However, while Paragon is investing heavily in digitisation, it is also being careful to look after its exiting crop of customers – some of whom may not welcome the increasingly online focus.
It has continued to support an underserved segment of its customers by offering postal accounts at a time when many challenger banks are offering a digital only service.
At present the majority of Paragon’s customers are baby boomers, but it is clear it is looking to attract younger savers.
This is already evident by the way it has been busy building a network of partnerships with the likes of Monzo and Revolut as well as savings platforms such as Raisin UK and Hargreaves Lansdown’s Active Savings.
Its collaboration with the likes of Monzo and Revolut, for example, has enabled these providers to offer competitive rates to their customers whilst providing yet a further source of funds for Paragon.
Another key indication that Paragon has its eye on attracting younger savers is the fact it is one of only five savings providers offering a Cash lifetime Isa product.
This is only available to under 40s who are either saving up to buy their first home or towards retirement.
Savers can put in up to £4,000 a year and the Government will add a 25 per cent bonus to their savings, up to a maximum of £1,000 per year.
With the Help to Buy Isa now ended and having been fully replaced by the Lifetime Isa, the Lisa is expected to soar in popularity, according to Sprawling.
‘On the face of it, the Lisa is an expensive product for us to offer because the administration costs are high,’ says Sprawling.
‘It hasn’t paid off for us yet but we are confident that it will eventually because we believe the Lisa is going to be one of the most important products for savers in the next ten years.’
On the more immediate horizon, Paragon will have to weather the cost-of-living crisis.
The latest figures from the Bank of England suggest the amount people are saving is plummeting.
The combined net flow of savings into both deposit and NS&I accounts in June was £1.9billion, down from £5.6billion in May.
This also sits well below the average monthly net flow of £4.7billion a month seen during the 12-month pre-pandemic period up to February 2020.
Sprawling is bullish about Paragon’s prospects however, partly due to the high proportion of its savers who hold fixed rate accounts.
‘Our application volumes remain strong despite the cost of living crisis,’ says Sprawling, ‘we’re more of a second provider for savers, not necessarily a home for people’s rainy day or accidental savings.
‘Our customers tend to be more proactive savers who hold fixed rate deals for one or two years.
‘In terms of interest rates, I can’t predict the future. The more I read, hear and watch on the subject, the harder it is to judge, but we will just keep managing our pricing and proposition to keep pace with what comes.
‘Over the past year there has been a lot of repricing but we’re managing to keep up with the top of the market.’
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