Mutual respect pays off at Co-op Co-operative story heady

Paul Gosling reveals where to get top rates and a shelter from building society upheaval
SAVERS who feel distaste for the windfall-fever going on in the world of building societies have an alternative mutual home for their savings in the Co-operative societies in which they shop. Many accounts offered by the Co-ops pay higher interest rates than even the best of the building societies and - although also owned by their customers - are much less likely to have this traditional structure shaken up by takeover offers and the like.

In spite of shrinking profits from competition with the supermarkets, many of the societies continue to offer investors extremely good interest on their share accounts - variable rates of up to 7 per cent or more - and bonds, which pay fixed rates of 8 per cent or more for tying your money up for two years or longer.

But as homes for your savings, the Co-op shops' higher rates should serve as warnings of potentially higher risks - there is less compensation available if a Co-op should go bust, which is arguably more likely than a building society going belly-up. Over the years, societies have amalgamated with others, in many cases in response to financial crises.

Because each society is autonomous, and has its own trading situation, interest rates vary. significantly. And the accounts are separate from those offered by the Co-operative Bank - which itself can offer competitive rates and which strongly pushes its ethical lending stance.

It is not necessary to live in the area covered by a society to invest in it. You can open accounts and cash-in by post. Our table shows some of the best rates and opportunities.

o You get 7 per cent on share account balances of pounds 200 to pounds 20,000 from the Plymouth and South Devon Co-operative Society (01752 662800). Withdrawal of sums of more than pounds 250 requires one week's notice.

o Chelmsford Star society (01245 490101) offers an account which is partof a deal that is designed to appeal to local consumers. Members who invest pounds 500 can join the 500 Club, in return for which they get a shopping smartcard which offers discounts and interest-free credit. The share account offers only 3.5 per cent, but 500 club members may also invest in three-year investment bonds paying 7.5 per cent, and five-year bonds paying 8.5 per cent, available for amounts between pounds 100 and pounds 20,000.

o The United Norwest society (01782 279222) pays between 3.5 per cent and 5.25 per cent on its share accounts, according to the amount invested. It also offers one-year bonds, minimum investment pounds 100, paying 7.5 per cent, and two-year loans which pay, on maturity, 7 per cent for the first year and 8.5 per cent for the second.

o Other societies that offer attractive rates include the West Midlands (01922 721255), which pays 8 per cent on two-year investment bonds, and 8.25 per cent on three-year bonds, and the Oxford, Swindon and Gloucester society (01865 249241) which pays 7.5 per cent for a three-year investment bond or 6.25 per cent on shares of more than pounds 200. The Leeds Industrial society (0113 270 2121) pays 7 per cent on shares of pounds 2,000 to pounds 20,000.

The two largest societies are the Co-operative Wholesale Society (0161 834 1212) and the Co-operative Retail Society (0161 832 8152), which have shops around Britain.

Both societies offer share accounts, although their rates are not as good as the best of the local societies. CWS pays 4 per cent on shares up to pounds 1,000, 5 per cent for amounts between pounds 1,000 and pounds 3,000, and 7 per cent for pounds 3,000 to pounds 20,000. The CRS pays 6.5 per cent for amounts between pounds 10,000 and pounds 20,000. The CWS warns that its rates are likely to fall in the near future, and the same trend is likely with other societies that have delayed their response to the general drift-down in interest rates.

But there seems to be little prospect of Co-ops following building societies down the de-mutualisation road, producing bonuses for shareholders.

That said, the traditional Co-op divvy - where profits were split among customers at the end of the year - has largely faded, although some are trying to revive it.

Although the CWS and CRS are strong businesses, some of the smaller societies are fairly weak, and there is a risk that they may have to be bailed out. Investors should be wary: weaker societies may be more inclined to offer higher rates of interest.

There is a depositors' protection scheme, enshrined in law, so that 75 per cent of the value of shares, bonds and loan accounts is guaranteed by the other societies, to a maximum payment of pounds 15,000 per person in any one society.

But this is of less value than the building society and bank protection schemes, under which depositors are guaranteed 90 per cent of their investments up to a maximum payout of pounds 18,000 per person, per institution.

Advantages of being co-operative

Co-operative society Interest rate Min savings

% (gross) balance

Plymouth & South Devon 7 pounds 200

Chelmsford Star 8.5 (F1) pounds 100

United Norwest 7.5 (F2) pounds 100

Leeds Industrial 7 pounds 2,000

F1 - fixed rate for 5 years; F2 - fixed rate for one year