Midget gems

By NEIL SIMPSON
Updated: 19:00 EST, 10 June 2001

BIG is not so beautiful for savers looking for cash mini Isas. The best-known High Street names pay the smallest returns because their armies of account holders tend to buy what is offered to them instead of shopping around.

Only one savings giant, HSBC, is in financial researcher Moneyfacts' latest list of the six best-paying cash mini Isas. But it barely scrapes in. Its 5.95% rate is second from bottom of the list.

Moneyfacts savings editor Melanie Stewart says: 'Smaller operators offer better deals across most of the areas we monitor because they have to give a little extra to win business.'

At the moment, the best return on a cash mini Isa comes from the tiny Monmouthshire building society, which has just nine branches in Wales. It pays 6.1% on balances of £10 or more, with instant access.

Smile, the internet arm of Co-opera-tive bank, pays six% on balances of £1 upwards with instant access. Investec bank pays this on £1,000 or more, but needs a month's notice for withdrawals. And Julian Hodge Bank pays six% on £250 or more to savers prepared to give three months' notice for withdrawals.

Finally, Mansfield building society, with just five branches, pays 5.89% on the full annual £3,000 cash Isa allowance. Three days ago it was paying 6.15%.

Stewart says: 'Strings are attached to many of the less well-known operators' offerings - for example, notice periods for withdrawals, or high minimum investments. But as long as savers are happy with these, they can easily beat mainstream providers' offerings. Many small building societies with a few branches also offer their best rates by post or even on the internet, so investors do not always have to live locally to use them.'

But how safe are these small players? Brian Capon of the British Bankers Association says: 'To take deposits, banks must be authorised by the Financial Services Authority. Savers are also protected by the Deposit Protection Scheme. In the event of a bank going under, this guarantees them 90% of their first £20,000 on deposit.'

Building societies offer a similar safety net. Their Investor Protection Scheme also guarantees savers 90% of the first £20,000.

Jo Ongert, 36, who works for a Swiss bank in London, turned to one of the less well-known names when she took out a cash Isa this year. She says: 'I looked at the best-buy tables for some time and the big savings names rarely appeared. But Investec was always near the top, and because I knew about the bank from my work in the City, I felt comfortable about choosing it. Too many other people stick with big-name providers and earn a lot less interest.'

Moneyfacts research also shows that smaller savings players are there for the long haul. Unlike most High Street giants, they do not top the payment charts for short periods, then quietly cut their rates when they have signed up enough customers.

Investec, Smile and Cardiff-based Julian Hodge bank are stalwarts of the best-buy lists for cash Isas.

In fact, Hodge won the Moneyfacts best-bank Tessa award for five years running until the accounts were closed to new savers in 1999.

• To find out whether a company offering savings products is authorised to take deposits, contact the FSA on 0845 606 1234 or check FSA.

It may also be worth asking if companies subscribe to the Banking Code, which also covers building societies, or if they are members of an Ombudsman scheme. The Ombudsmen for banks and building societies are now being merged into the single London-based Financial Ombudsman Service. More details on 0845 766 0902.