The phoney war is over; the supermarkets have begun their assault on the high street banks. Last week Sainsbury's launched a big expansion of its banking arm by offering a major Nectar points deal to lure in new customers. Meanwhile, Tesco Personal Finance renamed itself Tesco Bank last month a big step towards the supermarket becoming a full-scale bank offering current accounts and mortgages.
Both supermarket giants have been quick to point out how terribly the banks have behaved recently. Indeed they would like to be seen as white knights, riding into banking to offer consumers financial products they can trust. But don't be fooled - these are businesses not charities. The key question is, how do their products measure up against those of traditional banking institutions?
Supermarket savings rates can be beaten
The internet savings deals on offer from Tesco and Sainsbury's are competitive but complicated.
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Tesco's Internet Saver pays an eye-catching 3% AER in the first year, earning it a place on the best buy tables. But after a year that rate drops to 1.25% AER, so you'll need to remember to move your money again to get another good deal.
Meanwhile, Sainsbury's Online Saver pays 3.20% AER, but you can only make three withdrawals throughout the year.
So a better option would be Citibank's Flexible Saver Issue 6, which pays 3.30%AER for the first year. You still have to switch after a year to get another competitive deal but the initial rate is better than either Sainsbury's or Tesco's and there is no limit on the number of withdrawals you can make.
Sainsbury's also offers an Easy Saver account. This is tied to an offer of double Nectar points if you keep £5,000 in the account for two years. The account pays 2.80% AER. The trouble is, there are better interest rates out there try moneyfacts.co.uk. You also lose the double points earned if your balance falls below £5,000, so overall this isn't a very tempting offer.
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When Sainsbury's insurance is the best bet
Sainsbury's Nectar points deal also extends to its home and pet insurance. Both are Which? Best Buys. "If you shop regularly at Sainsbury's, this could be a great way to earn extra Nectar points. Sainsbury's Finance is a Which? Best Buy in a host of different categories, so you could get both excellent rates and a welcome fillip with the extra Nectar points," says senior Which? researcher Martyn Saville.
But, as with the savings account, watch out for the conditions attached to the Nectar deal. Should you claim on your home or pet insurance in the first year, for example, you lose your double points deal. "So I'm burgled, my bonus gets nicked too (and my premiums will go up, no doubt)? Thanks a bunch," says Julian Knight in The Independent. Sainsbury's may want to be seen as the friendly supermarket with a sideline in banking, but penalties like that suggest, "the brave new world of banking looks awfully similar to the old one," says Knight.
The trick as a consumer is, as usual, to forget loyalty schemes and shop around then sure, if Sainsbury's offers you the cheapest overall insurance that covers you for all likely claims, take it.
When to pick up a Tesco credit card
As for credit cards, both supermarkets offer very competitive credit deals. Those looking for a balance transfer card could do worse than Sainsbury's credit card. It offers 0% on balance transfers for ten months. But note that there are better balance transfer deals out there. Virgin, for example, offers 0% for 16 months, and Santander for 15 months.
Finally, Tesco's 0% on purchases deal for 12 months is at the top of the best buy tables for those not looking to transfer a large existing balance.
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