Your Money: Societies keep profit in mind

YOU MAY loathe and detest your high-street bank. But do not labour under any illusion that building societies are altruistic. They will tell you, of course, that rising profits mean a strong institution and security for depositors. But healthy profits also deliver healthy pay packets to the directors.

A Barclays Bank teller complained bitterly to the offices of the Independent on Sunday this week that his bank's customers are suffering because of the penny- pinching antics of building societies. He was unable to give Barclays clients due care and attention, he claimed, because he was spending so much time changing small coins for people who bank with building societies but are refused this service.

Theoretically, Barclays now charges non-customers for this type of transaction, but the whistle-blowing member of staff says that many tellers are reluctant to demand the fee because they fear abuse.

Building societies have been quick to identify the expensive aspects of banking services and have ruthlessly avoided them. Some leading societies have not been at all shy about introducing charges on small balances. And investors at the Cheltenham & Gloucester are witnessing a development which, if adopted widely in the industry, could make a big difference to the character of societies if not their balance sheets.

C&G has launched a new postal-operated account paying up to 10.2 per cent gross. However, investors in it become depositors rather than members. They have no voting rights so do not need to receive invitations to annual meetings nor all the other (expensive) documents a society is obliged to send to members. C&G, which tends to be a trend-setter, argues that most people are apathetic about their membership of a building society and would rather have a higher rate of interest than a say in the institution's affairs.

Maybe. But a society that attracts a large number of deposit accounts is eroding its status as a traditional 'mutual' institution run - in spirit, if not in practice - by the members for the members. In fact, it is illegal under the Building Societies Act for a society to have more than half its retail funds tied up in deposit accounts.

At that point, the Building Societies Commission would ask it to redress the balance or consider converting, to become . . . a bank.

IF THE renewed warnings about the possible scrapping of free banking are encouraging you to look to a building society for a current account, take care in how you organise the switch. Yesterday's Independent carried a horror story about a man whose mortgage-protection policy has lapsed after a mix- up. It appears this was at least partially due to switching direct debits from one bank to another.

Direct debits have their attractions. But one of the main reasons why banks promote them so enthusiastically must be the in-built deterrent to switching them. Since they are not originated by the bank, account-holders have to communicate separately with each company collecting debits from their account.

Opening a new bank account these days normally means going through an elaborate form-filling and credit-vetting procedure. Credit-scoring techniques are finely tuned to individual bank and building society requirements and there is no guarantee that you will pass muster with the institution you have chosen for your current accounting affairs.

It is not advisable to close a bank account in high dudgeon before opening a new one. Before you write that last letter of disgust, make sure you have received all the appropriate plastic cards you require and that all debit and credit orders are in place.

INSURANCE companies and unit trust managers are feverishly trying to develop investment packages that offer some sort of protection against market falls. Blue- blooded stockbroker Cazenove has already devised a scheme which offers investors in its American trust a potential refund. This comes good if the Standard & Poor's 500 Index falls by more than 10 per cent. But if the index stays the same and the fund falls, there is no refund.

Cazenove will no doubt ensure that potential investors understand the distinction. But regulators will need to keep an eye on the marketing literature associated with any boom in protected schemes - they realised that with-profit bonds were being oversold after many people had already piled in.

Vivien Goldsmith is on holiday.