Building societies are mutual organisations owned by their members. Since they do not have to keep shareholders happy with large dividends they can plough profits back into the society by offering higher rates for savers and lower rates for borrowers.
Those that convert to banks will have different priorities in future, says the Consumers' Association, warning that customers of building societies which become banks will gradually get a worse deal. The converting societies dispute that claim, but the Consumers' Association says that societies are taking advantage of savers who know they will lose out on a windfall bonus if they move their accounts.
As an example, it says that by March this year savers who had pounds 20,000 in a Bristol & West 90-day notice account when the society announced plans to convert would have earned pounds 300 extra interest if they had moved to a similar Nationwide account.
Out of the top 10 building societies, only two have said they will still be mutuals at the end of the year - Nationwide and Bradford & Bingley. Other large building societies remaining mutual so far include Britannia, Birmingham Midshires, Yorkshire, Portman, Coventry, Skipton, Leeds & Holbeck and Chelsea.
B&B is determined to maintain mutual status and is clamouring about the benefits it offers savers and borrowers compared with the societies which are converting during this year. As well as offering more competitive rates on conventional deposits and mortgages, it is returning to members what it calls "excess profits" - those above 5 per cent of reserves - in the form of loyalty bonuses, worth around pounds 2m a week.
Deals include a new five-year single-premium bond yielding 2 per cent above the market rate. It will invest three-quarters in a with-profits fund of one of the leading life assurance companies and the rest into a unit-linked fund. If market rates are 9 per cent, the bond will yield a guaranteed 11 per cent for the first year.
"We are so keen to recruit customers from the Halifax," said Lynn Coleman, the society's head of financial planning, "that we have put all the profit from the product into the package. It will be limited to pounds 150m, sold on a first-come, first-served basis."
For instant access accounts, B&B's postal account pays 5.6 per cent on deposits from pounds 1,000 up to pounds 10,000 and other mutuals offer similar rates. The Coventry postal account offers 5.75 per cent up to pounds 25,000. Nationwide offers 6.4 per cent up to pounds 25,000. The minimum deposit with Nationwide is pounds 500 and you get a cash card.
A word of warning: do not assume that mutuals always offer the best deals. Abbey National, which used to be a building society and is now a bank, offers 7.5 per cent fixed on its feeder Tessa, which is a better rate than any of the mutuals. Cheltenham & Gloucester, which converted recently, offers a 6 per cent instant access account which is near the top of the pile.
And then there is always the possibility that the dyed-in-the-wool mutual will decide to convert after all. In which case, you could be in line for another windfall.Reuse content