A 9pc return on your doorstep

Little-known local ‘friendly’ societies could offer a safe way to achieve high returns in today’s stagnant savings market, writes Conal Gregory

Advertised returns of more than 9pc should be enough to raise the eyebrows of any saver, but a handful of little-known schemes could offer a safe route to solid profits.

Interest rates on high street savings accounts have hit rock bottom and many investors have been stung by high- risk investment schemes that promised stunning returns but left them nursing heavy losses.

So- called friendly societies bridge the gap and, despite not being well known, offer serious returns to savers. These mutual societies were set up originally to provide funeral care and support for families of mariners lost at sea. The oldest is thought to date from 1555 in Leith, but their main expansion was in the 19th century.

With no welfare state in the industrial revolution, societies provided an income in old age, insurance against sickness and a proper burial, all through regular savings. That purpose continues today, even though a few – like Liverpool Victoria – have moved on to cover other areas of finance.

Today, friendly societies offer two unique schemes: tax- exempt savings plans and Holloway contracts, the latter being health insurance plans that build up a nest-egg for retirement.

Tax- exempt savings plans – or TESPs – offer a guaranteed cash return when the bond matures, plus the potential of financial bonuses if the underlying investments perform strongly. Plans must run for at least 10 years but can often be set for far longer. OneFamily in Brighton – which will accept customers up to 85 years of age – offers policies with a maximum length of 25 years, while Shepherds Friendly in Cheadle, Cheshire offers plans of up to 40 years. All profits are tax- exempt and operate independently of any Isa or self-invested personal pension a customer may hold. There is no need to enter the information on a tax return.

The Government restricts the amount that can be invested to £25 monthly or £270 annually, although the figures do not equate. The levels have not changed since May 1995.

The only age restrictions are e those set by societies, meaning even a baby can start a TESP, such as with Sheffield heffield Mutual. For those concerned d that 16-years-olds can suddenly come e into a substantial sum when a child d trust fund or Junior Isa matures, a TESP running to their 21st or 25th birthday rthday could be the answer. Some providers oviders set a higher starting age of 16, which reflects that life cover is included. ed.

Some accounts also offer benefits to members, such as dental cover or optical expenses. But unlike some building society accounts, which are limited to local residents, plans offered by friendly societies are available nationwide.

Almost all societies place the money in a “with-profits” fund, which pools members’ cash and invests shares, bonds, property and cash.

Each provider is free to decide their asset mix, so it is important to check before you take out a plan. A “fixed interest” approach – usually focused on investing in government and company bonds – is common. Some 78pc of money invested with Southamptonbased Foresters is held this way, as is 76pc with Healthy Investment of Bury, 73pc with Shepherds and 72pc with Unity Mutual of Manchester.

A few have high stakes in property, which is usually in bricks and mortar rather than building company shares – notably Sheffield Mutual, with 35pc in commercial premises.

Most avoid significant exposure to stock markets, with one exception. Compass, of Odiham in Hampshire, has 52pc invested in British shares and a further 39pc overseas. Scottish Friendly, Sheffield Mutual and Londonbased Transport Friendly all hold 15pc to 30pc of their funds in shares.