Your Money: Small savers feel the chill

SOMETHING rather odd happened at the building societies last week.

We are used to rate cuts, which mean a hurrah from borrowers and a boo from savers, or rate increases, which have the opposite effect.

But last week savers' rates were shaved without any corresponding glee on the mortgage side. The societies said they needed to widen the margins and could not possibly squeeze borrowers any more.

The societies are particularly keen to hang on to the big savers, who are especially sensitive to slight differences in interest rates. So once again it is the small savers who will feel the chill. Those with pounds 50,000 plus can find rates of 10 per cent gross, while small savers have to accept less than 2 per cent in some accounts.

Once again, there is a clear clash between the drive of building societies to act like real businesses - ensuring they have healthy profit margins which can absorb the shock of the increasing bad debts and repossessions - and the principles of mutuality, one man one vote, and existing to serve all the members . . . and all that.

One small crumb of comfort for savers can be gleaned by looking behind the nominal rates on offer and comparing them with the inflation rate - 3.7 per cent in July - to get to the 'real' interest rates, which are high at the moment.

With net rates at 6 or 7 per cent, this makes a real net return of 2.3 to 3.3 per cent.

But real rates being charged on mortgages are also high at the moment. Coupled with the gloomy housing market, it is easy to see why building societies are reluctant to raise mortgage rates. However, this cannot be ruled out. In fact, with the French vote on Maastricht due on 20 September, there are fears a 'no' will spell the end of the ERM, a flight from sterling and inevitable interest rate rises.

Building societies have been given respite in the strong outflows from their coffers as most National Savings products are off the market for two and a half weeks until 24 August. But this benefit may be wiped out as wealthy investors will be able to stock up with the maximum holdings again in the new issues.

The five-year inflation- linked bond, which pays a real rate of 4.5 per cent, has been available all along. This still looks a good deal.

BARCLAYCARD is trying to get people spending again with a special offer to 50,000 card holders that brings a free gift - the usual beach towel, holdall or red plastic camera - if they can manage to spend pounds 150 on the card between 17 August and 14 September.

It is something of a badge of respectability to have been sent this mail-shot. Barclays says it has only included frugal spenders who could afford to splash out a bit more and have always been good at paying their bills.

I'm sure Barclaycard would say it is not trying to persuade people to spend, spend, spend, but just to transfer their spending on to their cards.

It reminds me of the justification offered by the tobacco companies for advertising cigarettes: that they are trying to persuade people to switch brands and have no thought of increasing smoking at all.

PROPOSALS are due next month for a single body to police all the financial regulation that affects private investors. But there is still a question mark over whether the Personal Investment Authority (PIA) will ever come into being.

On the surface, it is a sensible idea: a simple and accessible one-stop shop for making complaints and seeking compensation.

This would be in stark contrast to the muddle that exists now. And at least the efforts that have been made to pull together the strands involved in home income plans show it is a possibility.

But from the other side it looks like an expedient way of rescuing Fimbra, the organisation responsible for overseeing independent financial advisers, from financial ill- health - the result of lots of small businesses plagued by problems that lead to compensation claims.

So it is not surprising that there is resistance from private client stockbrokers and others who don't want to join in.

What has been made clear already is that it will be the investors who end up paying. This will probably end up hidden in charges.

It might be better to devise a way of making an explicit levy, so investors understand who pays and how.