Best financial products: Supermarkets' 'lean and mean' business model gives them a distinct advantage

Lower overheads translates into competitive deals that regularly appear in the best-buy tables, says Andrew Hagger

Tesco is a leading contender for financial products (AFP/Getty Images)

The big supermarkets have been successfully selling financial products in the UK for just shy of 20 years – and the keen rates and discounted deals continue to make them a popular choice.

With all of the accounts and cards being sold online or by phone – and no bank branches to maintain – the overheads are less of a burden and this translates into competitive deals that regularly appear in the best-buy tables.

The "lean and mean" business model gives the supermarkets a distinct advantage, one augmented by the free parking right outside the front doors and polished advertising literature positioned to ensure that millions of weekly shoppers cannot help but notice the availability of top-value offers on credit cards, personal loans, mortgages, savings, insurance and travel money.

Credit cards offering reward points are a very strong product area built on the huge success of the Clubcard loyalty scheme at Tesco and Nectar brand at Sainsbury's. Meanwhile, the cashback credit card from Asda gives 1 per cent back on all grocery and fuel spending.

Supermarkets are strong in unsecured borrowing, too, with Sainsbury's Bank offering the third-longest interest-free term for card purchases, at 25 months. Tesco Bank is not far behind at 21 months.

Tesco and Sainsbury's are also in the top 10 for 0 per cent balance-transfer deals, at 38 months and 37 months, respectively – in touching distance of the 39 and 40-month market-leading deals from MBNA Platinum and Halifax, respectively.

It is a similar story in personal loans, with supermarkets having dominated the best-buy tables over the past three years. For loans of £7,500 and £10,000, Tesco charges just 3.4 per cent APR representative and is a top-five player along with the likes of M&S Bank.

Tesco is also establishing itself as a credible competitor in the mortgage market, particularly for longer-term, fixed-rate deals. It currently tops the best buys, with 1.64 per cent for two years, and this week removed the product fee on its range of 95 per cent first-time buyer mortgages.

While the top slots in the savings league table tend to be occupied by the less well-known banks and niche financial players, Tesco and Sainsbury's are never too far off the pace with their pricing and frequently offer a better return than the main UK banking brands.

Tesco also has its own current account. This offers Clubcard points on debit card spending, a competitive overdraft rate and credit interest of 3 per cent on balances up to £3,000.

The numbers of people switching to supermarket accounts have been better than those for many of the big banks. That's not really a surprise, with many consumers seeing current accounts as an alternative home for some of their savings nest-eggs.

There is often talk of challenger banks threatening the monopoly of the big high- street banks. However, the supermarkets the dream combination of a huge weekly footfall and simple, competitive product ranges that can really make a difference.

Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk