Supermarkets are challenging the banks in world of finance
SUPERMARKETS ARE now key players in the world of finance. No longer do they restrict themselves to food, wine and household goods. The trolleys are increasingly filled with financial products.
Yet many will be surprised by the breadth of money offerings and, just like food lines, the supermarket chains enjoy disrupting traditional markets with their special offers.
From current accounts and credit cards to insurance and loans, including mortgages, the range is vast. In the insurance field, protection is available from home and motor to pet and travel.
Few might imagine that a supermarket can offer a current account but Tesco Bank has just such a product. The bank was owned equally by Tesco and The Royal Bank of Scotland until 2009 but is now entirely owned by the store. The bank has been led for a decade by Benny Higgins, 57, who leaves shortly to chair the financial services firm, Kyckr.
During Higgins’s watch, he has seen Tesco Bank suffer a cyber attack where £2.5m was stolen from around 9,000 customers. However, to Tesco Bank’s credit, worried customers were all promptly re-credited but the episode revealed a chink in its IT armour.
Tesco Bank offers three per cent interest on cleared balances up to £2,500 with its current account, provided there is a minimum £750 monthly funding and at least three direct debit mandates are effected. There is no fee to open or run the account unlike Yorkshire Bank’s monthly £25 for its Current Account Tracker.
In addition to interest, Clubcard points are awarded on the basis of one per pound spent by debit card in a Tesco store and one per £8 elsewhere. Both the interest and points are guaranteed until April 2019.
For an overdraft, there is no arrangement fee, unlike Barclays (Premier), Cater Allen and Yorkshire Bank.
Its overdraft interest rate of 18.9 per cent matches the Co-op and Nationwide (FlexAccount) but there are far cheaper alternatives with no interest charged at Barclays, Danske, Leeds-based First Direct (part of HSBC), Halifax, Lloyds and Santander.
The Co-op Bank has three current accounts, two of which require at least £800 monthly to be credited. The bank pays £4 in every month where the minimum funding is met and needs four direct debit mandates to be held. It also requires customers to check the account online or by mobile at least monthly and to have opted for paperless statements.
Each time the related debit card is used, the Co-op Bank will pay 5p up to a maximum £1.50 a month. These cash rewards can be paid into a nominated account or donated to selected charities such as Hospice UK and The Woodland Trust.
A package current account is the second type offered by the Co-op Bank, costing £15 monthly.
It brings a host of benefits including mobile phone insurance, UK and European vehicle breakdown cover and world-wide travel insurance for the account holder (aged 18-79 years) and their family including children up to 22 years for trips up to 45 days.
Cheque books are available with both the Co-op Bank and Tesco current accounts.
A basic no-frills current account is also offered by the Co-op Bank. Called Cashminder, it has no fee and no overdraft facility. Although no longer owned by the Co-operative Group, it claims to be the only UK high street bank with a “customer-led ethical policy” which it has developed over 25 years.
Earlier this year the bank was sold to five US hedge funds including GoldenTree and Silver Point.
Supermarkets offer a range of cash savings products but are rarely market leaders on their interest rates. For an individual savings account (ISA) where the deposit will grow tax-free, there are two cash options, based on £5,000 investment:
No notice: Sainsbury’s 1.06, Tesco 1.01, M&S 0.75, Co-op (online) 0.75 per cent
Fixed term: one year Tesco 1.16 and M&S 0.65, two year M&S 0.75, three year M&S 0.85 per cent
There are also non-ISA accounts. According to research by Moneyfacts for
the instant access cash ones pay from 1.20 per cent with Tesco (Internet Saver) and 0.87 per cent with Sainsbury’s (eSaver Special) to as low as 0.34 with Co-op Bank (Smart Saver) and even 0.10 per cent with M&S (Everyday Savings Standard).
Sainsbury’s offer another facility with its Extra Saver account, allowing money to be added from a debit card at the checkout. However, it pays only 0.6 per cent interest.
If money can be tied up for longer, the rates are better and fixed. For five-year bonds, Tesco pays two per cent and Sainsbury’s 1.90 per cent, on four years Sainsbury’s pays 1.85 per cent and for three years savers can obtain 1.80 with both Sainsbury’s and Tesco but 0.80 per cent M&S.
There are money products for children. A junior cash ISA is offered by Tesco Bank which is operated by internet or telephone. It allows transfers in or out without penalty, unlike a 45-day notice period with Family. It pays three per cent which is only beaten by Coventry and Nationwide, paying 3.5 and 3.25 per respectively.
An instant access children’s account, the aptly named Future Fund, is available from the Coop. Until the child is seven, the account is held by a parent or guardian. It pays a measly 0.34 per cent and can run until the 17th birthday.
Credit cards are one of the most popular supermarket money products. Asda is one of the very few offering a cashback MasterCard.
It has a free one which pays one per cent on purchases in Asda stores and 0.5 per cent elsewhere, as well as one costing £3 monthly where the cashback is two and one per cent respectively.
M&S have three fee-free MasterCards with loyalty schemes based on 100 points valued at £1. Reward Plus gives double points on M&S purchases for the first year.
Shopping Plus gives 500 points on opening, 2,000 points on the first £20 purchase and then one point per pound in-store and one per £5 outside. Transfer Plus brings 500 points on opening, followed by points earned through online M&S shopping.
Co-op Bank credit cards are for existing customers only. Its Members’ one pays 100 points (worth £1) voucher on opening, followed by one point for every £2 spent in-store and £3.33 elsewhere.
Tesco offers seven credit cards, all free except one (Premium) which costs £150 annually but this brings global multi-trip travel cover. Typically, its Low APR card has a loyalty scheme of five points for £4 spent in-store and £8 outside.
Several of the cards from both Sainsbury’s and Tesco bring savings on travels and/or hotels. The former offers six fee-free cards, all offering loyalty points.