Windfalls or not, societies are stuffing savers

Interest rates for savers are pitifully low, while the stock market is unlikely to go much higher for now and may be set for a fall. It's bad, but not that bad.

Ignore the piffle spouted by some of the building societies not handing out windfalls about offering better rates. Basically, all societies are stuffing their savers.

And it was two of the most vocal advocates of the benefits of the no- windfall route - Nationwide and Bradford & Bingley - that announced cuts this past week. B&B claims its rates are still, on average, 0.25 per cent higher than those of its key competitors, but that still only means 3 per cent gross on pounds 3,000 instant access. That's a measly 2.4 per cent for basic-rate taxpayers.

The more societies pare their rates the more many of the deals on offer from National Savings stand out, particularly for smaller savers (see table on facing page). For example, an NS Investment Account will pay 5 per cent on just pounds 20 on 30 days' notice, while on pounds 500 the rate is still a very competitive 5.5 per cent. Premium Bonds, offering prizes averaging 4.75 per cent tax-free of all the money staked, look good in the context of generally low rates.

That said, societies' fixed-rate savings deals are on the up. Savers with maturing Tessas, for example, are looking at fixed-rate offers back up to around 7.5 per cent, and it is possible rates could hit 8 per cent in coming months.

An obvious reason for not leaving the building society is the promise or prospect of windfalls. Clearly, a number of societies are taking advantage of the fact that savers are leaving their money untouched in case they reduce their eligibility to already announced windfalls, while others know they don't have to offer decent rates because of the number of windfall hunters opening accounts.

It's still probably worth targeting those that have not announced. Birmingham Midshires is the current favourite for a windfall, but there is a band of societies including Chelsea, Nationwide, Bradford & Bingley, Britannia and Yorkshire where windfall hunters could strike lucky, whatever the public stance of the societies. Call 0800 414161 for a free booklet called What Will Become of Your Building Society?

It's difficult to recommend trying the same trick by taking out policies with the mutual life insurers, however. True, there will be no shortage of windfalls coming from these organisations either.

The latest, Colonial Mutual, an Australian insurer, announced plans last week to demutualise and give free shares to its pension and insurance policyholders. In the UK, 360,000 people stand to get an average of pounds 1,400 worth of free shares, probably early next year. But many other insurance windfalls will be in the form of bonuses on policies. And you may have to commit a lot of money to get a relatively small bonus.

Stock market-wise, Railtrack looks a runner. There are big political risks, assuming Labour gets in, but many analysts see the combination of price and dividends on offer as another giveaway for private investors (or at least for those already registered with share shops).

The deadline for applying for Railtrack shares is 15 May. Next week this newspaper will cover the offer in depth.