A Mortgage With Your Melons, Madam?
Tesco Personal Finance hinted this week that it is looking at entering the mortgage market. But should you trust a supermarket with your finances?
Every little helps, according to Tesco, and while suggestions that it might enter the mortgage market may seem to have come at a strange time, more choice is exactly what beleaguered borrowers need.
Tesco Personal Finance was set up as a joint venture with RBS, but earlier this year the retailer bought out the bank's 50% share. Tesco will continue to use RBS's banking licence during the transition until it becomes registered by the Financial Services Authority itself.
The supermarket chain said it intends to double its finance business and is considering a raft of new product offerings, including mortgages and possibly a current account. Andrew Higginson, finance director at the firm, said that the credit crunch had created an opportunity to enter the market.
But how do the supermarkets stack up against the traditional financial service providers in terms of their existing offerings?
Stack em high, sell em cheap?
When UK supermarkets first developed financial offerings over 10 years ago (Sainsbury's was the first in 1997), they marketed themselves on the same premise as direct financial providers. Without a branch network to support they could afford to cut costs for consumers, offering competitive deals. Initially, many of the products were available as postal or phone accounts, with the internet becoming increasingly important, as with all providers.
But Tesco's plan to actually become a financial institution is important because the other supermarket's financial arms are joint ventures with other organisations (using their banking licences), or they simply act as an introducer to the banks and insurance firms.
So who does what?
Asda
The budget supermarket's financial services arm offers a wide range of products, including motor insurance and breakdown cover, home insurance, pet insurance, travel insurance, travel money services and life assurance. It also offers credit cards, loans and savings accounts, as well as a utility switching service.
But unlike the other supermarkets Asda acts an introducer to traditional providers. The products are branded ASDA but your contract is wholly with another provider. For example GE Money, Norwich Union, Engage Mutual Assurance, Travelex and RAC are all firms which distribute their products via ASDA. Bradford & Bingley also provided the retailer's internet savings account, which have now all been transferred to Abbey.
Asda also offers a competitive personal loan at 7.9% APR.
M&S
While you wouldn't strictly define Marks & Spencer as a supermarket it does offer food and finance (as well as undies).
It offers all the usual insurances (pet, car, travel, home, life) as well as wedding insurance, a credit card, personal loan and a car buying plan. It offers a different range of savings accounts to the other supermarkets as it provides investments as well as deposit accounts -- you can get a cash ISA, stocks and shares ISA, unit trust and fixed rate savings account.
M&S Money is a 50:50 venture with global bank HSBC.
Sainsbury's
Sainsbury's Bank is a joint venture with HBOS (or Lloyd's TSB/HBOS now) and offers loans, savings, the wide range of insurances offered by the other players, plus landlords' insurance, credit cards and travel money.
Tesco
The retailer is applying for a FSA authorisation to offer its own products but at the moment it still operates under RBS's licence. It currently offers savings, credit cards, loans, and a full range of insurances. But it will be interesting to see what Tesco decides to offer under its own steam -and whether that includes mortgages.
But are they cheap?
On loans, Asda is leading the market, charging a typical APR of just 7.9% on loans between £7,500 to £25,000.
For credit cards all four offer 0% balance transfer rates, with Tesco offering the longest interest-free period at 14 months on its bonus card. Meanwhile, Sainsbury will give just you 10 months interest free, Asda nine and M&S six. All revert to an APR of 15.9% (pretty standard) except ASDA which charges 17.8%.
A better deal would be Capital One Bank Platinum card , at 0% on balance transfers until February 2010, giving you 16 months' interest-free and reverting to the same 15.9%.
When it comes to savings, Tesco wins hands down. It increased its internet saver rate by 0.25% on Thursday to 6.50%, one of the best available rates on the market. You can get better (Alliance & Leicester is offering 6.6%), but not much better.
Asda pays 5.75% and Sainsbury's 5.5%. M&S doesn't have an instant access account but it does offer a cash ISA paying 6.01% --although you can get 6.67% tax-free interest with Natwest's cash ISA.
In terms of insurance, all the supermarkets offer a wide range of products. I compared them on travel insurance as an example, assuming single person cover for a single week long trip to Europe. Below is the default cover quoted if you don't highlight any extras or choose different excess options.
Prices quoted were:
Tesco: £15.30
Asda: £17.09
Sainsbury's bank: £17.48
M&S: £18.20
All in all, the supermarkets perform well against the mainstream banks, building societies and insurance companies, with Tesco looking cheaper on most comparable products. And while you can usually find a better deal elsewhere it's fair to say that the supermarkets are undoubtedly competitive.
If Tesco can become even more competitive in the financial arena perhaps we'll all soon be tempted to buy a mortgage with our mangoes or a loan with our lettuce.
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