Q&A: What the merger means for you

The merger of Britannia and Co-operative Financial Services Boards will create a new “super-mutual” which the companies are calling an “ethical alternative to shareholder-owned banks”.

It will have 9m customers, more than 12,000 employees, and more than 300 branches in the UK. What does this mean for ordinary savers, mortgage holders and investors?

I’m a customer of one of the mutuals. Does this mean I’ll get a windfall?

No. The companies have clearly stated that members will not get a pay-out. Traditionally, members of mutuals have received windfalls when those companies have demutualised and they have been given the option to become shareholders.

However, new legislation passed on Monday has allowed the two different types of mutuals to merge while maintaining their mutual ownership. This means that customers will continue to share profits and have a say in running the business – Britannia through its Membership Reward and CFS through the Co-operative dividend.

What will this mean for the respective membership rewards schemes?

Members of both businesses will continue to earn rewards as they do now, pending integration. The Co-op says that members of the merged business will have more opportunity to increase what they earn and to start to earn it on a wider range of products, including Co-op stores and travel agents.

So what is being created exactly?

The new business will be a subsidiary of The Co-operative Group and Britannia members will become Co-op members. However, the new business will continue to trade under the Britannia and Co-op brands, as well as the Smile internet bank. Customers will see no immediate change to the products and services they receive.

What is the difference between a mutual and a co-operative?

A mutual is any organisation owned by its customers or members. Customers of a mutual, such as a building society, are members by virtue of the product they hold, while members of a co-operative join, usually by paying a nominal sum of £1. The rules governing different types of mutual are largely historic but the key values, beliefs and commitment to member ownership are the same for both businesses.

I have a savings account with one of the building societies. Will I see my rates improve?

Britannia and the Co-op have hinted that savings made because of the merger could be passed on to customers in the form of more competitive interest rates.

However, advisers say the intention to merge savings products could reduce competition in the overall savings market and a reduction in the number of accounts on offer.

Neither business is particularly competitive in the savings market and comparison site Moneyfacts says there is little to choose between them.

Co-op only offers savings products to customers who have one of their current accounts, apart from its Smart Saver, which pays just 1 per cent. Britannia’s Homesaver account is currently paying the top rate on the market at 4 per cent, but is only available for savings used as a deposit for a house. On fixed rate bonds and cash Isas, the rates from both providers are similar and neither offers “best buy” deals.

Customers have been told not to expect new rates soon. There will be no immediate alteration to the products and services that are offered, and any change in rates could take up to three years.

I chose the Co-op because of its ethical policy. Will this stay the same?

Because the mutuals plan to offer just one set of rates for customers, there will no distinction between Britannia’s products and those of the Co-op, which screens all prospective investments and avoids businesses that conflict with its customer-led stance on human rights, animal welfare and the environment.

However, Britannia has said that it is already committed to operating in an ethical manner by considering social, economic and environmental factors when it does business. “We intend to take the best of both businesses,” a spokesperson for Britannia said. “And of course, Co-operative Financial Services stands out because of its ethical policy, so we have no intention of watering down any of those commitments.”

I have savings with both providers. Will my money still be protected?

The Financial Services Authority has said that savers who have money in the Co-op, or its internet arm Smile, and in Britannia will retain protection on the first £50,000 held with either building society, under the Financial Services Compensation Scheme.

Will the merger have an impact on the availability of mortgages?

Brokers say the merger is not bad news for mortgage borrowers, but is not necessarily good news either. The combined group should be stronger than the individual lenders and well placed to compete in the market. But neither Britannia nor Co-op is likely to make immediate changes to their product ranges.

Britannia recently announced that it was expanding its specialist lending arm, Platform, to include prime lending as well as buy-to-let and sub-prime mortgages.

Ray Boulger, at John broker Charcol, said both Britannia and Co-op were reasonably competitive in the market. Both have attractive longer-term fixed rates. Britannia is also one of the few lenders that still provides mortgages up to 90 per cent loan-to-value.

The Co-op says it will keep all customers on their current rates, including those on a standard variable rate (SVR) mortgage, but also said that it “will move quickly to a single product range once the necessary integration of customer systems is complete”.

Britannia’s SVR is currently 4.99 per cent and the Co-op’s is currently 4.74 per cent.

When will customers start to benefit?

This is the difficult part. It could take up to three years for full integration. Only then will customers be able to access the full range of banking, savings, investment, insurance and mortgage services.