Turmoil at banks boosting building societies

Business Correspondent/Personal Finance Editor

Saturday 7 July 2012

Building societies and alternative financial institutions are set to benefit from the banking crisis, research will show next week.

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SIMON BAIN

The Question of Trust campaign will be launched in London with an academic study showing that even before the recent crisis, trust in the big banks was eroding.

The latest Financial Services Trust Index, produced by Nottingham University, will be unveiled amid renewed public anger at the high street players over the mis-selling of derivatives to small businesses and manipulation of the official inter-bank lending rate.

Shane Mullins, a wealth manager who founded the campaign, said it would show "building societies are set for a huge surge in interest from savers and investors and smaller firms are leading the larger players in the trust stakes".Consumers are already responding, according to the volunteer-run Move Your Money campaign, which began in the US where it prompted 10 million Americans to desert the bigger banks in favour of "ethical" alternatives.It reported a 15-fold increase in web-hits this week, claimed 10,000 customers had left big banks in recent weeks, and said the Co-operative and other mutuals were reporting "a massive increase in inquiries".The Co-operative, which saw its current account business boom in the wake of the financial crisis, may now be under stronger political pressure to pull off the deal which would see it treble its high street banking presence by acquiring the 632 Lloyds branches up for sale. Although still in the balance, such a deal would create a strong counterweight to the big three banks in Scotland, where the Co-op would then have almost 200 outlets.Nationwide Building Society said this week it had seen "an 85% increase week on week in the number of customers opening and transferring their main account online", and a 26% increase overall in new account openings. John Crossley, Nationwide head of current accounts, said: "Customers are clearly unhappy with recent events and are opting to vote with their feet." Norwich & Peterborough building society, part of the Yorkshire, said applications for its Gold Classic account had doubled."A high proportion of the new customers have switched from Barclays and NatWest and we believe this is clearly in reaction to the recent financial scandals and criticism of the big banks," said Ewan Edwards, head of current accounts at N&P.The Building Societies Association said inquiries at societies were up by 30%.Paul Ellis, chief executive at Ecology Building Society, said: "Frustrated customers have an alternative: they can move their money to an institution that acts in accordance with their values. Ultimately, however, we want to see the day when ethical financial institutions are the norm, not the exception."Mr Mullins said that was the aim of Question of Trust campaign, which was supported by organisations such as Credit Action. Kevin Mountford, head of banking at MoneySupermarket.com, commented: "Whilst switching accounts can be a good thing, consumers need to make sure they are moving for the right reasons."If you are unhappy with your bank, then jumping ship may not necessarily be the answer, especially if the deal you are on is a good one. Instead try and make the most of the products you have by being more savvy. "Ultimately, people need different things from their current account – some people are always in credit and will find that cash incentives are the best way to maximise returns, but others will need to consider various overdraft charging structures. Those thinking about ditching their bank account altogether after recent events should think again. Having a bank account is essential."Mutuals offering current accounts include the Nationwide, N&P, Coventry and Leeds. The Coventry account requires a £1000 a month deposit, can be operated by phone or online, and offers a market-leading £250 free overdraft (then a £5 a month usage fee) as well as 1.09% credit interest, according to Moneyfacts. The N&P accounts look similar to bank offerings, while the Leeds account, available only in branch (Glasgow) has no minimum pay-in and a £100 fee-free overdraft.Nationwide's Flexaccount offers free travel insurance if you pay in £750 a month, while the Co-operative's Current Account Plus with a minimum £800 pay-in has a fee-free £200 overdraft.Mutuals also score well in best buy savings. The Leeds offers 2.75%, with no bonus strings attached, in a postal account, while the Bath and Principality building societies have top-paying notice accounts with a bonus, along with the Post Office and the Skipton (via branch).For instant access internet accounts with bonuses the field is led by the Derbyshire, Nationwide, Principality and Post Office, while regular savings account best buys include those from the Nottingham and N&P societies. The top cash Isas are from the Cheshire (on £1000) and the Coventry (on £1 but including a bonus), while the Coventry, Furness and Market Harborough societies offer the best Junior Isas.

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Turmoil at banks boosting building societies

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