It used to be easy. If you wanted a mortgage or savings account you went to a building society, if you needed a bank account you went to a bank and if you wanted groceries you visited a supermarket. Nowadays, they all offer mortgages and savings accounts. The building societies argue they still provide the best deals, but is this true? Abigail Montrose investigates.

Following the recent spate of building society conversions, there are now just 71 left in business in the UK, with over 10 million members between them. The societies argue that they offer better value over the long-term than other savings and mortgage providers because they only have their members' interests at heart. In contrast, the mutuals claim, public companies, such as the banks and former building societies, put shareholders' interests before those of their customers.

Alan Oliver, spokesman for the largest building society, Nationwide, says: "We don't have to pay dividends or put shareholders' interests first. We can focus on our customers in everything we do, passing on the benefits of better mortgage and savings rates to them." Fine words, but does the rhetoric stand up to the facts?

A recent survey by the Consumers' Association looked at the savings and mortgage rates offered throughout 1996 by the five largest remaining building societies - Nationwide, Bradford & Bingley, Britannia, Birmingham Midshires and Yorkshire. These were compared with five which had announced their decision to convert into banks - Halifax, Woolwich, Alliance & Leicester, Northern Rock and Bristol & West.

Those which became banks charged mortgage borrowers an average variable interest rate of 6.75 per cent during 1996 - 0.3 percentage points more than the pro-mutual building societies. A typical pounds 50,000 loan would cost about pounds 8-pounds 9 a month more with a bank than a building society.

Savers with the converting societies also lost out, receiving an average of 4.41 per cent gross interest on their savings, compared to 4.8 per cent that the mutuals were paying. On a pounds 5,000 deposit, the mutuals win out by pounds 19.20 a year on average.

The converting societies may have been able to get away with poorer rates as they forced members to remain with them in order to receive their cash windfalls.

But figures from the Building Societies Association show that on average banks regularly charge more for mortgage loans than building societies. In September, for example, the average standard variable rate mortgage from a bank was 8.45 per cent, while the average building society charged a lower 8.13 per cent.

Further evidence of this trend comes from MoneyFacts, a provider of interest rate data. It looked at how much interest the top 30 mortgage lenders charged on a pounds 50,000 standard variable rate mortgage in the 12 months to the end of June 1997.

The seven cheapest deals were all offered by building societies. Yorkshire Building Society, for example, charged pounds 299.91 less that year than Bank of Ireland Mortgages charged for the same mortgage.

But the building societies also now compete with direct sellers such as Direct Line and Virgin Direct and new telephone banks such as Scottish Widows Bank and Sainsbury's Bank, which currently offer some of the lowest standard mortgages on the market.

To try and stop these new mortgage providers cutting in on their share of the market, a number of building societies have introduced special deals. For example, Bradford & Bingley, in common with some smaller, regional societies, offers reduced standard variable mortgage rates to long-term borrowers.

Britannia Building Society has a members' loyalty bonus scheme, which pays out an annual bonus to members depending on its annual profits.

Nationwide has given back pounds 400m in total to members in the form of better mortgage and savings rates. Its standard variable mortgage rate is presently 8.1 per cent and it has promised not to raise this before Christmas.

The savings market is just as competitive as that for mortgages. The new banks set up by supermarkets and insurance companies such as Prudential Banking, Legal & General Bank, Scottish Widows Bank, Sun Banking Corporation and Sainsbury's Bank offer some impressive rates, especially for instant access and postal accounts.

Nationwide argues, however, that often these new banks will only offer one or two types of savings account, whereas building societies typically offer a much wider range.

A quick look at the best buy tables shows building societies frequently offer the best deals on long-term savings accounts such as fixed-rate accounts, regular savings accounts, Tessas and bonds.

In the future, it remains to be seen how many building societies will be able to maintain their mutual status. Members may yet be seduced by promises of large windfalls and seek to convert their societies into banks.

In the meantime, they are putting up a fight to retain their members, forcing other financial institutions to offer attractive rates to both savers and borrowers. Long may this last.

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