Two building societies are to become a mega-society with 13 million members. Here's how you can profit from this deal.
The hot news this week is the announcement that Nationwide BS and its smaller rival Portman BS are to merge into a mega-mutual (member-owned) society with over thirteen million members.
Although this deal has been described as a merger, it smells like a takeover to me, because the Nationwide is the largest building society, whereas Portman is only ranked third. What's more, Nationwide members won't receive windfall payments from the deal, whereas 1.8 million Portman members can look forward to payouts of at least £200 apiece. Finally, the new business will be branded as Nationwide BS, so this is surely closer to a takeover than a merger!
Assuming members of both societies vote in favour of the takeover, and subject to approval from financial watchdogs, the combined group will become the UK's second-biggest mortgage lender and savings provider (after HBOS) from September 2007. What's more, it will have over eight hundred branches across the UK, so we may see some branch closures and job losses in overlapping areas.
In order to bag a windfall, Portman savers must have had at least £100 in a qualifying savings account on 11 September 2006, and must remain a qualifying member until some date around the time of the takeover. Portman mortgage borrowers must have owed at least £100 on the same dates to qualify for payouts.
When Portman came together with the Lambeth BS, Lambeth members received windfalls of up to £1,000, so both Nationwide and Portman customers must be disappointed by the handouts to come in September 2007, when the takeover should be completed.
How you can profit from this deal
Nevertheless, Nationwide and Portman customers -- and anyone else -- can benefit from this news, regardless of whether they are in line for a windfall or not. After all, this announcement provides a timely opportunity for customers to see how their financial products stack up against the best on offer from rival firms.
To make life easier, I've done all the hard work for you by checking both societies' leading products and comparing them to the Best Buys. Here's what I've found:
CREDIT CARDS
The Nationwide Classic Visa offers 0% on purchases for nine months and 4.9% on balance transfers for a year, with a typical APR of 15.9%. It's also a Best Buy card for using abroad, as it doesn't charge rip-off currency-conversion charges, plus it is one of very few cards to allocate repayments to your most expensive debts first. Its payment protection insurance costs £7 per £100 of monthly benefit, making it one of the cheapest policies (but far more expensive than the Post Office's policy at £4.50).
Portman doesn't offer credit cards at present.
All in all, Nationwide's card is a great all-rounder -- and one of my favourite pieces of plastic. However, by shopping around, it's easy to beat Nationwide's deals, such as 0% balance transfers lasting up to a year, 0% on purchases for up to a year, and cashback of up to 3% of your spending.
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CURRENT ACCOUNTS
The Nationwide FlexAccount has long been an inhabitant of the Best Buy banking tables. If customers pay in at least £1,000 a month, this account pays 4.25% AER on credit balances up to £3,000 and 0.25% on any balance in excess of this threshold. Its agreed overdraft rate is 7.75% EAR and unauthorised overdrafts costs 24.9% EAR.
Portman doesn't offer current accounts at present.
Although Nationwide's bank account is miles better than the traditional bank accounts of its Big Four rivals (Barclays, HSBC, Lloyds TSB and RBS/NatWest), it can be beaten.
For example, the table-topping Alliance & Leicester Premier Direct Current account offers the highest rate of credit interest (6.1% AER on balances up to £2,500), plus an interest-free approved overdraft of up to £2,500 for a year and 5.9% EAR thereafter. The Coventry BS First Instant account (5.35 AER on up to £250,000) and the Halifax High Interest Current Account (5.12% AER on up to £2,500) also beat Nationwide's credit interest rate.
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MORTGAGES
As the UK's third-largest mortgage lender and its biggest mutual lender, Nationwide aims to offer the best mortgage rates to its members. With no shareholders to pay dividends to, Nationwide devotes part of its profits to keeping its mortgage rates low.
What's more, Nationwide's mortgage offers are available to all of its customers, whereas its rivals generally reserve their best deals for new customers. Hence, Nationwide is more successful at retaining its existing borrowers than other mortgage lenders are.
Nationwide's standard variable rate (SVR -- the interest rate paid by all mortgage borrowers who aren't on a special-rate deal) is 6.24% a year, which is about 0.6% below most major mortgage lenders' SVRs. What's more, Nationwide has a broad range of good-value home loans, including competitively priced two- and three-year fixed, discounted and tracker rates.
On the other hand, Portman has a higher SVR (6.75% a year), but competes aggressively for new business and remortgages. Despite being about a sixth of the size of Nationwide, Portman often features in the mortgage Best Buy tables, usually for its market-beating two- and three-year fixed rates. However, unlike Nationwide, which charges daily interest on outstanding mortgages, Portman usually charges annual interest, which makes its mortgages slightly more expensive and less 'fair'.
Also, Nationwide's mortgage payment protection insurance (MPPI) costs £5.86 for a monthly payout of £100, compared to £5.50 for Portman's MPPI. However, both policies are massively more expensive than the Best Buy MPPI cover from the likes of Best Insurance, British Insurance, Burgesses, Helpupay and the Post Office, so both societies get the thumbs down in this category!
In summary, both building societies have competitive mortgage ranges, with Portman making the Best Buy tables more often than Nationwide. Hence, the combined group should be a major force in the mortgage market from next September onwards. Then again, why restrict yourself to a single lender, when there are 125 different mortgage lenders competing for your business, offering around 8,500 different home loans? The simplest way to scour the entire mortgage market is to use a no-fee mortgage broker, such as award-winning Fool partner London & Country Mortgages.
Check out these mortgage deals and get quotes for car, home, life and travel insurance!
PERSONAL LOANS
Nationwide has long been an aggressive competitor in the personal-loan market, offering low rates backed by widespread marketing campaigns. What's more, Nationwide gives all its customers the same headline interest rate, whereas four in five lenders charge typical rates which are awarded to just two-thirds of successful borrowers.
For a benchmark loan of £5,000 over three years without the dreaded payment protection insurance, Nationwide charges a total amount repayable of £5,517 (6.7% typical APR), which puts it 17th out of 78 loans in my survey. However, remember that all successful applicants get this rate, which makes Nationwide a much better bet for borrowers without immaculate credit histories.
Portman doesn't offer personal loans at present.
For the record, these are the cheapest deals to borrow £5,000 over three years without PPI:
Lender | Total amount | Typical rate |
|---|---|---|
Masterloan | 5,439.96 | 5.7 |
Abbey (online rate) | 5,447.52 | 5.8 |
Masterloan (fixed) | 5,455.44 | 5.9 |
Cahoot (fixed) | 5,470.92 | 6.1 |
Eskimo Loans* | 5,486.04 | 6.3 |
Lombard Direct | 5,493.96 | 6.4 |
AA (online rate)** | 5,499.00 | 5.8 |
Source: Moneyfacts, 14/09/06
* £35 fee for same-day funds by CHAPS.
** First repayment collected after three months, which pushes down the APR but pushes up the interest bill.
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SAVINGS ACCOUNTS (basic, cash mini-ISAs and children's accounts)
At present, Nationwide is number two in retail savings, second only to Halifax. According to my latest Moneyfacts magazine, it has seven basic savings accounts, with interest rates on £1,000 ranging from 1.4% a year in its CashBuilder account to an impressive 4.8% in its popular e-Savings account.
On the other hand, Portman's savings accounts are far less attractive. Two of its four basic savings account require a minimum balance of over £1,000; its Instant Access account pays just 1.85% a year on this sum; and its highest rate is paid by its Members Loyalty 90-Day account, a three-year bond which pays 5.25%.
As for cash mini-ISAs, which pay tax-free interest and into which you can deposit up to £3,000 per tax year, the Nationwide pays 4.65% a year on £1,000 in its Instant ISA, with the Portman paying 4.75% on the same sum.
Both societies have good children's savings accounts. Nationwide's Smart account pays 4.95% a year on £1+ (my children both have one), and Portman's Young Saver pays 4.75% on £10+.
In comparison, for an everyday easy-access account, you can't beat the ICICI Bank HiSAVE account, which pays a mighty 5.15% AER on £1+ with no strings attached. Also, the instant-access Citibank Flexible Saver account pays 5.20% for the first six months and then 4.75% thereafter (5.03% AER) on £10,000+ and includes a cashcard for fee-free withdrawals.
Read about Britain's worst savings accounts and then check out these superior savings rates!
In conclusion, both borrowers and savers with the Nationwide and Portman building societies could beat their present products by shopping around for better bargains. So, if you're unhappy with your non-existent windfall, or just want to put your finances on a stronger footing, vote with your feet now!
More: Find superb bank accounts, credit cards, mortgages, personal loans and savings accounts!
Disclosure: Cliff owns shares in HBOS and Lloyds TSB.