Supermarket banking
Tuesday, 08 September 2009 05:41
Most consumers are reasonably comfortable with the idea of banking services from providers other than their bank, and trusted brands such as Marks & Spencer and Tesco have been successful in persuading their customers to pick up financial products along with their normal shopping.
Although still not as popular as banks, these providers are catching up and some are taking advantage of the huge loss of confidence the banking crisis has triggered in consumers to improve their offers.
Sarah Routledge heads to the high street to check out some banking alternatives.
Competitive offers
Supermarkets in particular are competing against each other to attract new customers during the recession.
Tesco started its Tesco Personal Finance (TPF) venture with Royal Bank of Scotland but jumped at the chance to buy the bank's share in July 2008 for £950 million.
With the operation now solely under Tesco's control, the UK's biggest supermarket chain has been expanding.
After creating 800 new jobs recently with a new call centre, Andrew Higginson, chief executive of Tesco Retailing Services, made the group's ambitions clear: "The opening of the new customer service centre will be a significant step towards TPF offering a full banking service.
"It is hard to ignore that people's trust in the banking sector is at a very low ebb. Offering first class customer service, however, is central to our Tesco values and the new centre will most certainly help us put the Tesco into Tesco Personal Finance."
Michelle Slade, spokesperson for Moneyfacts.co.uk, said times are good for supermarkets.
"Many consumers are disillusioned with traditional banks and instead are looking for an alternative provider for their finances," she says.
"The combination of competitive deals and a strong brand that consumers already know and trust is a real winner for the supermarkets.
"Smaller providers are relying more heavily on their savings books to fund their lending activities and in turn are offering the most attractive savings rates.
"By comparison, many high street banks have a number of alternative ways of raising funding and tend to offer less attractive deals."
A spokesperson for Sainsbury's adds: "People do appear to be questioning their choice of provider more, including the major banks, when looking for financial products."
At the moment, Tesco offers insurance, credit cards, loans, saving accounts, travel money, and also runs a comparison website for other services.
But Tesco is set to open in-store branches and this could see the retailer move into current accounts and even mortgages.
Sainsbury's says they have no immediate plans to open in-store branches, but points out that customers can already pick up information in store, deposit funds and purchase travel money.
Savings
All supermarket savings accounts in the UK are protected by the Financial Services Compensation Scheme (FSCS), which means your savings are protected up to £50,000 if the group went bust, just as in a bank or building society.
Moneyfacts highlights the internet savings accounts from Sainsbury's and Tesco for their competitive offers.
Tesco's Internet Saver offers a rate of three per cent (including a 1.75 bonus for 12 months) on a deposit of just £1, while Sainsbury's Finance's Internet Saver offers 2.90 per cent, although the bonus is variable and the deposit is £1,000.
"Over the past few years, Sainsbury's Bank has built a reputation of offering consistently competitive savings rates that are above the market average,
"We offer good quality, award winning products with high standards in customer service and we think customers have taken all of this into consideration when choosing our products," a spokesperson for Sainsbury's says.
M&S Money, which has been around for the longest, also offers an online savings account, the Everyday Savings Account, although the interest rate is lower at 1.56 per cent.
Marks & Spencer also has fixed-rate accounts available, and the three-year account at three per cent interest stacks up well against similar accounts from other providers.
Credit cards
With many supermarkets now offering loyalty points, it is a natural step to offer credit cards. While they do not usually top the best buy tables for their interest rate or balance transfer offers, supermarket cards tend to offer some of the best loyalty schemes.
Marks & Spencer offers points on shopping at its stores with the M&S Credit Card, but has gone a step further by creating the M&S Premium Club.
Credit card holders can pay £10 a month and receive triple M&S points on shopping with the retailer, free drinks at the cafe and worldwide multitrip family travel insurance.
Although even the most enthusiastic M&S shopper may struggle to drink £10 worth of tea every month, the travel insurance is very comprehensive and provides cover to many countries for the over 80s, something many other insurers will refuse to do.
Travellers can also use their card to buy money at M&S, without incurring the usual cash advance fee, which is quite useful if you are not keen on paying in cash.
If you are a fan of Sainsbury's, and the Nectar points scheme, Sainsbury's credit card offers two Nectar points for every £1 spent in store - and this is in addition to your Nectar card. Used elsewhere, the card attracts one point per £5.
In addition, the card will attract 0% interest for a year on shopping at Sainsbury's.
The Tesco Clubcard Credit Card also offers one Clubcard point for every £4 spent, in addition to the usual points you collect when shopping in store.
And, as with M&S Money, the card can be used to buy Tesco travel money with no cash advance fee.
Loans
The supermarkets have been consistently in offering medium, low-rate loans, and several now lead the way.
Both Asda and Sainsbury's offer 7.9 per cent on loans between £7,500 and £15,000, over a period of one to seven years.
Tesco is close behind, offering eight per cent on similar conditions.
M&S Money is charging more than these three, at 8.7 per cent.
Effectively, this takes the rate down to 7.9 per cent overall - similar to its peers, but M&S is prepared to lend up to £25,000 at this rate, which is more than Tesco, Asda and Sainsbury's.
These rates all compare very well with high street banks and building societies, and are some of the best on the market.
Insurance
Supermarkets offer a good range of travel, car, home, pet and life insurance. Generally, the policies compare well on price, and most will also offer all the extras you might want.
As insurance prices vary depending on your circumstances, it is bes to use a price comparison site to find out which is the cheapest - but remember, compare policies on your need, not just on price.
Often the insurance policies will also come with additional benefits, such as food vouchers or loyalty points, so take this into account too when comparing prices.
Future
The competition between supermarkets is extremely fierce, and constant price wars keep prices low for consumers.
With Tesco planning to expand its operation, it is likely rivals will seek to do the same. Perhaps customers will consider a current account or a mortgage a step too far - but with many lenders disappearing in the credit crunch, the market could certainly do with a bit more competition.
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