Fresh thinking on financial services

As supermarkets take on the traditional providers, Sam Dunn asks if they offer the best deals on savings, loans and insurance

Put all the different financial products on offer in supermarkets and high-street retailers into a single trolley and the wheels would buckle.

Put all the different financial products on offer in supermarkets and high-street retailers into a single trolley and the wheels would buckle.

New offers hit the shelves as often as those for groceries. Staff in Marks & Spencer stores, for example, have spent the past few days scurrying to switch instore advertising from its mini cash individual savings account (ISA) to the new motor insurance launched last week.

At J Sainsbury, giant banners hang over tills offering life cover - a market where prices have also been pushed down by cheap insurance deals from Boots and Asda. Meanwhile, the Post Office has introduced a personal loan; its own car cover is on course for May and a mortgage is scheduled for launch within the next 12 months.

"These retailers do offer a credible alternative," says Richard Mason, director of financial information website Moneysupermarket.com. "With their reach and their consumer base, they negotiate very good prices for customers."

Cast your eye over league tables comparing financial products and you can see how supermarkets have barged their way into the market. According to financial information pro- vider Moneyfacts, M&S Money, the retailer's financial services arm, and Safeway offer some of the better rates on mini cash ISAs - 4.5 and 4.35 per cent respectively, just behind Intelli- gent Finance's table-topping 4.6 per cent.

Moneyfacts' tables of simple term life cover for male smokers taking out a £100,000 policy over 20 years show that retailers offer some of the cheapest premiums around. Not everything is a bargain, however.

While the annual percentage rates (APR) of 11.5 at Sainsbury's, 12.3 at M&S Money and 13.2 at Tesco for a £3,000 unsecured personal loan compete well with the high-street banks, they are some way off the 6.5 available at Northern Rock or 6.7 at Nationwide.

As for credit cards, their standard APRs for goods purchases are not cheap - 14.9 at Tesco, 14.9 at M&S, 18.9 at Morrisons - compared with 9.9 at the Halifax and 10.9 at Mint, part of the Royal Bank of Scotland.

Supermarkets do help to drive down prices, says Mike Owen, managing director of independent financial adviser (IFA) Plan Invest, but they don't cover all the angles. "With more complex medical issues on a critical illness [policy], they won't be able to offer the same comprehensive cover.

"But to be fair, they can offer good rates. On savings accounts, Safeway offers 4.1 per cent on its postal account while Halifax offers a terrible 0.25 per cent on Liquid Gold [with postal option]."

This highlights an apt consumer adage: shopping around will get you the best deal.

Yet while supermarkets won't always be the best, they can tailor products according to demand. "We won't always be the cheapest," concedes Liz Neald, spokeswoman for M&S Money, "but we will give our customers what they want.

"With car insurance, we asked what they wanted and the response came back for free breakdown cover and a replacement car."

This customer loyalty is sorely lacking in the established UK financial services industry and helps explain the phenomenal growth of retailers.

Only last year, M&S's financial services arm contributed nearly £90m profit to the group, while Sainsbury's two million life insurance and savings accounts contain roughly £2bn.

After financial scandals stretching from personal pension mis-selling to the Equitable Life affair, consumers want to put money with a trusted brand.

As a recent Treasury Select Committee report put it: "Many large retailers now have a higher level of public trust than some of the UK's largest financial institutions."