William Kay: It's a rate that will shake the market but why can't all customers benefit?

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The Independent Online

While it owes much of its effect to smoke and mirrors, the new Halifax and Bank of Scotland 6 per cent Regular Savings Account will shake up the market. It has already stung the competition and should prompt comparable products, which will benefit consumers.

More than four years ago, Halifax, under the aggressive leadership of James Crosby, started paying a useful amount of interest on current accounts and was pooh-poohed for its pains by the big banks.

We have moved on since then, and in recent weeks National Savings & Investment and Abbey have announced better savings deals. They have come on the heels of worthwhile internet and telephone offerings from First Direct, Egg and Intelligent Finance, as well as the previous market leader, ING Direct.

It was a delicious irony to see Lindsay Sinclair, ING's chief executive, accusing the new competitors of offering an unrealistically high rate to sucker people in, the very suspicion which was levelled at ING when it emerged. So far ING has stuck to its guns, paying a generous 4.3 per cent without the strings attached to the Halifax/BoS account, so let us hope Mr Sinclair does not have to eat his words.

The important point is that savers now have a range of places to deposit their money and earn rates of interest comfortably in excess of the latest 1.4 per cent annual inflation. The fewer the frills, such as a cheque book, or the greater the number of strings such as notice periods or minimum regular deposits, the higher the rate of interest. For those who can save regularly and not touch their money for a year, the Halifax/ BoS 6 per cent is hard to beat, unless you have a mortgage or other debt and can benefit from an offset account. Higher-rate taxpayers end up with only 3.6 per cent, so they would be better off with a Marks & Spencer mini-cash Isa paying 4.5 per cent.

The 6 per cent before tax is on the table and is as guaranteed as Halifax/BoS can make it. But the smoke and mirrors lie in the fact that it has been manufactured using four hidden ingredients.

One is by keeping costs to a minimum. The second is by playing the derivatives market to increase the bank's income on deposits. Third, Halifax/BoS is relying on the Bank of England base rate rising, which will make the 6 per cent less attractive. And finally, there is taking an initial loss, known euphemistically as "investing in the product".

Only the first of these is sustainable, while there may be continuing derivatives opportunities. Halifax/BoS is not committing itself to maintaining the premium over base rate, and it is not going to invest in the product for ever. So this account may fall back into the pack.

And, while this account is open to existing Halifax and BoS customers and those who bank elsewhere, it is not being directly offered to customers of the Halifax group's other brands, Birmingham Midshires and Intelligent Finance (IF). They can direct money to the new account, but as an IF account holder I regard it as appallingly cynical to divide the market in this way. If it's good enough for customers of one part of the group, it's good enough for all.

Storing up trouble on expensive store cards

Warning: This product may damage your wealth, and could ruin your life, break up your family and leave you begging on the streets.

That message, or something like it, could be slapped on store cards after the forthcoming publication of the inquiry into the sector by the Office of Fair Trading (OFT).

As Helen Monks explains on page 9, the stores and the cards' main issuer, GE Capital, have pleaded that their plastic is really a marketing tool, not many borrow on them and the costs of running them are much higher than for mainstream credit cards.

But they charge 30 per cent or more at a time when base rate is only 4 per cent and competition is driving credit card interest down to 10 per cent. And that 30 per cent is often paid by poorer folk, who grab the first-day store discounts available to card holders then find it all too easy to put off payment.

As I have said before, the business model for store cards appears fundamentally flawed. But the OFT may decide that if stores hand out these cards and consumers accept their terms, they should be allowed to do so.

As with cigarettes, the answer may be to shout the risks loud and clear. Graphic pictures of lung tissue may yet be matched by lurid photos of crippled bank accounts.

* Like the sound of drowning kittens have come the anguished calls from building societies, hurt that I called their very existence into question last week. It was heart-rending, for I meant them no ill.

Nationwide is the one mutual mortgage lender that can eyeball its plc rivals, for it handles £100bn. But that dominance only highlights the impotence of the other 62 societies, responsible for £100bn among them, a puny average of £1.6bn each. The top 10 produce many good ideas and innovative products in a murky financial world. But they are a luxury from a bygone age.

w.kay@independent.co.uk

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