Supermarkets a better option for savers?

Supermarkets have launched a series of table-topping fixed-rate bonds for savers recently, rivalling the rates offered by the high street banks.

Tesco pays 2.95% AER for a one-year term and 3.5% AER for two years on deposits from £2,000.

Sainsbury's most recent offer was slightly more competitive, paying 3% for a one-year term, 3.5% for two years and 4% for three years on deposits from £5,000, although these were so popular they are now fully subscribed.

Compare these rates with Barclays' one-year bond, which offers 2% AER on balances between £500 and £50,000 and 2.5% on deposits over that amount.

Tesco and Sainsbury's already offer a limited range of easy-access savings accounts; the arrival of the fixed-term bonds marks a further move by supermarkets into the savings market.

Consumers are backing the trend. A recent YouGov survey found that two-thirds would consider opening a savings account with a non-traditional bank.

Trend to continue

The launch of these bonds could kick-start other supermarket giants to offer the same competitive savings products – although John Brady, commercial director of the financial services arm of John Lewis, sister company of supermarket chain Waitrose, says that its main financial product is insurance, and it isn't planning to launch a savings account.

However, M&S Money, the financial arm of Marks & Spencer, quietly entered the savings market in 2004. It offers almost identical savings products to both Tesco and Sainsbury's. Its one year fixed rate bond pays 3%, its two year bond 3.2% and its three year 3.5%. It also has cash ISAs and a regular access account.

Ian Morris, a spokesperson from Sainsbury's Finance, believes supermarket savings products are real rivals to the high street banks.

"Sainsbury's offers good quality, competitively priced products and the convenience of being able to withdraw and deposit money in-store," he says.

"Of course, we are competing with traditional banks, but our main concern is the Sainsbury's shopper and what products and services are right for them.

"Having a supermarket as a parent company means we know our target customers extremely well and are able to focus on developing new products and services that we are confident meet their needs."

Morris adds: "While our latest bonds are now fully subscribed, they will be available in the future, although we can't guarantee they will be offered at the same competitive rate."

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