Failing the fairness test

By RICHARD DYSON
Updated: 10:48 EST, 15 February 2006

WE know it is best to treat some banks with caution because they are out to make a profit for shareholders. But we expect more from building societies because they are owned by borrowing and saving members and exist entirely for their benefit. So why do some societies offer miserly interest to their most loyal savers and charge the sort of mortgage rates that would make even the greediest bank blush? Richard Dyson reports:

BUILDING societies, especially smaller ones, have some of the worst savings and mortgage accounts on the market. And they can show the banks a thing or two about dirty tricks such as trumpeting top deals that turn into duds, adding sneaky charges or operating dormant accounts with appalling rates.

Financial Mail, which has long campaigned for building societies to be managed first and foremost for the benefit of members, has compiled a fairness test to expose societies that do not treat all members fairly.

While some customers find chart-topping rates, others end up with deals, such as the selection right, that are shamefully poor value.

As with banks, there are types of accounts where societies are more likely to give members poor deals. Instant access is one.

Many mutuals pay less than 2% gross. Vernon Building Society, based in Stockport, Greater Manchester, has one of the worst ranges of savings accounts of any society. Its instant access offering pays a meagre 0.85% on deposits under £2,500. It is easy to find twice that rate elsewhere.

Accounts paying interest monthly are also often dismal. Savers should expect four% or more, even after the latest cut in the Bank of England base rate.

Most societies offer reasonable rates for cash Isas - with the exception of Mansfield - but beware of the small print. Portman Building Society, for instance, charges Isa savers £30 to switch to rival accounts. At many societies, the standard mortgage rates paid by borrowers who are not on special deals are the worst on the market. Lambeth takes the biscuit at 6.94%. The cheapest equivalent deal, from HSBC bank at 5.75%, costs almost a fifth less.

But not all societies are failing their members. Increasingly, some are making a serious effort to ensure that all the deals they offer are reasonable and fair, if not top of the table.

Over the past two years, Nationwide has shifted hundreds of thousands of customers from outdated accounts into current deals where the rates they earn match those for new customers. Nationwide is the only society to calculate the value it gives to members by comparing, month by month, the deals it offers against those of its biggest rivals. It estimates that members have saved £1bn a year by choosing Nationwide.

Other societies are following suit to distinguish themselves from the banks. Skipton is merging accounts to streamline its range and make sure that savers do not languish in deals that pay poor rates. Even if savers do nothing, they are likely to benefit from improved rates or terms. Derbyshire has started what it calls a fairness forum where 60 members get the chance to tell bosses how they can run the society better. And, crucially, their input includes advice about accounts.

They could start by quizzing Derbyshire bosses about recent cuts on Cash, Triple Gold and Crown Instant accounts. As Financial Mail reported last week, rates on these accounts have been slashed by 0.6 percentage points, now paying as little as 0.4% after tax.

Retired policeman Colin Riley and his wife Janet have accounts with Skipton Building Society, which has a branch in their home town of Penrith, Cumbria.

'I personally like the mutual idea,' says Colin. He says staff at both the banks and building societies in Penrith are friendly. However, it is when he has to deal with institutions by phone that he notices a big difference. 'With building societies, it seems that all staff want to treat customers well,' he says. 'With banks, there is a suspicion that they're keen to get your money, but not necessarily offer good service.'

The Rileys had accounts with several building societies that became banks in the late Nineties. In all cases, they voted against the conversions because 'it was a move away from the customer'. Now they have eight accounts with Skipton. But do they trust the society to ensure they will keep getting value for money?

'We keep an eye on our accounts,' says Colin, 'and we make sure we vote every year. That's our way of participating in the society's management.'