Indian groups offer best rates

Indian banks now offer the highest savings rates in the UK, following the failure of previous top-payers from Iceland and Ireland in the credit crisis.

Indian deposit-takers head the “best-buy” tables for fixed-rate savings bonds, which give higher returns to savers prepared to tie up their money for one to five years.

The top rate of 4.9 per cent, fixed for five years, is from Bank of Baroda, India’s fourth biggest deposit-taker, beating the highest rate from a UK banking brand of 4.56 per cent. By contrast, with the base rate just 0.5 per cent, the best instant access rates from any bank are below 3 per cent.

Bank of Baroda, which has nine branches in the UK, predominantly serving British Asians, this week started online sales of savings bonds through Moneysupermarket.com, the comparison service.

Other large Indian banks – including State Bank of India, ICICI and Punjab National Bank – have successfully attracted UK deposits in recent years.

Sukhdev Sharma, managing director of Punjab National Bank (International), which offers the highest fixed savings rates for one - and two-year terms (up to 4 per cent), said: “The credibility of Indian banks has gone up in the year or two since the crisis.”

Deposits of up to £50,000 with these banks’ UK arms are covered by the UK’s Financial Services Compensation Scheme, giving savers the same protection as they have with a traditional high street name.

Subhash Mundra, chief executive of Bank of Baroda UK, added that savers had the reassurance that State Bank, Punjab and Baroda are all majority-owned by the Indian state.

“So the logic of a bank going down would be a government default,” he said.

He estimated that Indian banks held more than £5bn of UK deposits – equivalent to the savings book of one of the bigger building societies.

“We’re certainly ahead of the Chinese banks in the UK,” he said.