A new product aimed at savers and supported by gold has been launched offering a 2 per cent rate over a year.
The account, open to those depositing between £1,000 and £20,000, has been launched by e-money provider Tally Money.
Rather than relying on fiat currency, Tally Money uses gold as its physical reserves and it claims unlike traditional banks, its customers savings are never loaned, leveraged, or invested, meaning there is no bank lending risk to customers.
However, it doesn’t come with Financial Services Compensation Scheme protection and one expert has warned those tempted to be cautious of the offering.
Gold bug: There’s a one-off joining fee of £20 and an account fee of 1% per year – although the account fee won’t be charged on the money held in the account
London-based Tally says money saved with it are anchored to the value of gold.
Cameron Parry, chief executive and founder of Tally said: ‘When it comes to savers, the incumbent banking system is designed to protect and benefit the bank, not the customer. People need an alternative, which is why we built Tally.
‘With inflation badly outstripping the low rates being offered by high-street banks, people are desperately searching for solutions that offer value, security and an alternative to this fiat (government-issued) money trap.’
He adds: ‘This product, and the Tally banking system in general, has been designed to give savers a fighting chance against rapidly rising inflation and financial volatility.
‘And unlike traditional banks, our customer deposits are not leant out, leveraged up or invested, which makes saving with us more secure.’
How does it work?
The new savings product is available through the Tally App to Tally customers only.
Those interested would need to download the Tally app and complete its onboarding process to open an everyday account, for which there is a £20 joining fee.
There is also an annual account fee of 1 per cent for money held in Tally’s everyday account – although this won’t apply to the money held in the ‘savings’ account.
When you transfer cash into your Tally Money account, those funds are used to purchase gold at the global wholesale price.
Tally Money relies on the fact that historically gold has maintained its purchasing power.
The gold is then denominated in ‘Tally’, with each ‘Tally’ valued at one milligram of physical gold which allows you to save and spend it using your Tally App and Tally Debit Mastercard.
As the price of gold goes up and down relative to pound sterling, so does the value of your Tally account and the price of gold can fluctuate.
However, Tally’s fixed-rate ‘savings’ deal allows you to move the money out of your everyday Tally account and fix the value and the 2 per cent return for one year with the balance locked in as soon as your deposit arrives.
Tally’s founder and boss Cameron Parry says the current banking system undermines any benefit to saving whereas Tally’s new account provides security for savers
This, it claims, means your deposit and return is not affected by movements in the gold price.
At the end of your fixed term, your money will automatically be moved back to your Tally account, where you can access the funds and where it will once again fluctuate in accordance with the gold price.
People can deposit anywhere from £1,000 to £20,000 into the fixed rate deal, although spaces are being allocated on a first-come-first-served basis.
Tally expects to facilitate up to 1,000 savings accounts per month with the exact number depending on the total amount being deposited.
Parry said: ‘Saving money that holds its value over time, and keeps the customer’s asset secure at all times, is fundamental to an individual’s financial wellbeing.
‘Our market-leading one-year fixed-rate product makes fixed-rate savings more rewarding and also introduces customers to the benefits of Tally’s non-fiat banking system.’
Is it safe?
Tally Money is an e-money institution, which means you have different protections under UK law.
Like any bank account issued under an e-Money licence, Tally accounts are not covered by the Financial Services Compensation Scheme.
The FSCS is an independent statutory organisation set up to reimburse customers up to a maximum of £85,000 – or £170,000 in the case of joint accounts – if a bank fails.
How it works: ‘Tally’ is valued at one milligram of physical gold, which is housed in a vault in Switzerland
Instead, Tally Money safeguards its customers’ money in gold and some fiat currency, which is held in a bank in Switzerland, held on behalf of Tally customers under a custodial arrangement, under the protection of a security trustee.
Tally claims the combined value of this is in excess of the total value of all customer deposits and guaranteed returns.
It also states that whilst it is not covered by the FSCS, it is not limited by it either, meaning deposits up to, and in excess of, £85,000 are protected.
However, the lack of FSCS protection coupled with the fact that Tally Money is pegged on gold price movements, means that despite the fixed rate guarantee, some experts view it as more of an investment scheme than savings product.
Tally Money claims to offer savers a solution to the rising cost of living
James Blower, co-founder of the Savings Guru said: ‘Gold is a tradeable investment and the value of it can go down as well as up and I wouldn’t recommend this investment to anyone.
‘I have concerns the 2 per cent return may not be met, particularly if gold depreciates in value over the next 12 months, and savers are not protected by the FSCS.
‘Unfortunately we have seen too many investments recently, trying to lure savers to investments, which have ended badly for savers.’
Meanwhile, Anna Bowes of Savings Champion, warned: ‘It is misleading to pitch it against savings accounts as it is certainly not the same.
‘This is an investment and anyone who puts money into it needs to be very clear about the risks.’
How does it stack up?
The actual rate of return will largely depend on how much you are prepared to put in.
Taking into account that savers will need to set up a Tally account and pay £20 for the privilege – the effective return on a £20,000 deposit falls from 2 to 1.9 per cent.
For a £10,000 deposit the effective return becomes 1.8 per cent and for a £1,000 deposit the cost of joining Tally, essentially cancels out any form of return.
The market leading one year fixed rate deal offered by SmartSave Bank currently pays 1.38 per cent.
Therefore, to exceed Tally’s return on a £10,000 or £20,000 deposit, you’d need to opt for a longer fixed rate deal – for example, QIB’s five year fixed rate deal paying 2.10 per cent.
But there are alternative ways to boost your rate and get closer to the type of returns Tally is indeed offering – and with the safety net of FSCS protection.
The savings platform, Raisin is offering a welcome bonus giving savers the chance to boost their savings by £50 when they open and fund an account on its marketplace with a minimum of £10,000.
Given that its current range of deals sit very competitively with the rest of the market, Raisin offers savers a chance to effectively leapfrog the best savings rates via its £50 bonus.
For example, its leading one year fixed rate deal offered by Charter Savings bank pays 1.33 per cent, but with the £50 welcome bonus added, a saver stashing away £10,000 via Raisin’s best deal would end up with an effective rate of 1.83 per cent.
‘I’d recommend that savers looking for a fixed return for 1 year save with Zopa Bank orUnited Trust Bank (rather than Tally),’ said Blower.
‘Those looking to beat the return could look at UBL or Zenith Bank’s 3 Year Bond via -both paying 1.82 per cent.
‘If they invest at least £10,000 via Raisin, they will get a £50 bonus, which exceeds the effective rate of 1.9 per cent from Tally, once the £20 fee has been taken off a £20,000 investment.’
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