Savings chiefs ponder prize accounts

BUILDING SOCIETIES

Heartened by public reaction to the £10bn windfall on offer to customers of the Halifax and Leeds Permanent, the building society movement seems convinced there is more mileage to be had out of lotteries.

Building society executives are discussing the possibility of launching lottery-style accounts. Instead of paying interest on the account, the society would hold a draw each month and pay a cash prize to the account holder whose number came up.

The downside to the idea as far as the societies are concerned is that it would leave them open to accusations that they had descended from safe havens for savings and providers of housing finance to little more than gambling dens.

But analysts suggest that the fear may be receding because public attitudes have been changed by the National Lottery. As long as the prize money is not drawn from the society's accounts, it could prove acceptable to public opinion, they say.

Advocates of such accounts say they would not be so different from premium bonds. They would also have an advantage over the National Lottery, in that savers would get their original deposit back, albeit without interest. If inflation stays low, the prospect of a £1m prize may prove attractive.

Critics of such a scheme point out that it would be a costly way to win deposits. One society even described it yesterday as "a disgraceful idea - an underhand way of attracting deposits. You might as well offer the winner a seat on the board as well."

Meanwhile, the speculation over building society mergers continues. Cheltenham & Gloucester this week said that it would continue to seek mergers with smaller building societies even after it becomes part of Lloyds Bank on 1 August.

Rumours of a merger between Nationwide and Alliance & Leicester will not go away. Both societies said they had been talking about possible mergers but refused to say with which societies. If the deal goes ahead and the merged society then ditches mutuality, it will produce another massive share giveaway.

A number of smaller building societies may be attracted to merging with C&G under the Lloyds mantle because of the relatively cheap funding Lloyds can provide via the international money markets. Customers may also be receptive to the cash payments that Lloyds would pay for such deals.