A mortgage and a pinta

It's official: we are not being ripped off by supermarkets. The Competition Commission report on supermarkets published last month concluded: 'The industry is broadly competitive and, overall, excessive prices are not being charged nor excessive profits earned.'

That may be true of bacon and baked beans, but can the same be said of the supermarkets' financial products? There was certainly no hint of profiteering when Sainsbury and Tesco launched their savings accounts back in 1997. And the attractive rates paid on balances of £1 and upwards put them well ahead of the high street and ensured regular appearances in best-buy tables. But then the new supermarket banks realised that giving consumers such a good deal wasn't making them enough money.

Less than a year later they were still offering better deals than the average high-street savings account, but with the introduction of interest-rate tiers and new banks set up by insurers Legal & General, Scottish Widows and Standard Life - and the Safeway-branded accounts operated by Abbey National - they were by no means market leaders any longer.

Today, anyone with small amounts to save should steer clear of the accounts offered by supermarkets. Balances of less than £500 earn a miserly 1.9 per cent with Safeway's Direct Savings account, although savings of between £500 and £1,000 earn a more reasonable 5 per cent. This is marginally better than the 4.85 per cent paid by the Instant Access Savings account from Sainsbury on balances from £1 to £1,000 and by the Tesco Savings account on savings from £1 to £3,000. But it is still less competitive than the 6.25 per cent paid on any size of balance by the Easy Access Tracker from Legal & General Bank (0500 111200). Nationwide FlexAccount customers prepared to do business over the Internet can do even better with Nationwide's e-Savings account (www.nationwide.co.uk), which pays 7 per cent on balances from £1 up to a maximum of £50,000. A minimum deposit of £2,000 earns the same (including 1 per cent introductory bonus) with Abbey's web-based eSaver (www.abbeynational.co.uk).

But while supermarket accounts aren't a particularly attractive option if you have modest savings, it's a different story if you have substantial sums.

Provided you have a minimum of £10,000 to set aside and you're prepared to give 60 days' notice of withdrawals, the best rate is from Safeway, which is paying 7.1 per cent (including a bonus of 1 per cent payable until 1 April 2001) on its Postal Notice Account (0800 995995).

If you want a no-notice account, the Direct Saver from Sainsbury's Bank (0500 405060) doesn't match the rates paid on the e-savings accounts already mentioned but it does start to approach best-buy status if your savings exceed £25,000. On this size of balance, you'll earn 6.25 per cent (including a 0.25 per cent bonus until March 2001). The rate goes up to 6.5 per cent if you have £100,000 on deposit. However, with that level of savings, every percentage point counts. You could earn over £300 more a year (before tax) with the CLIC Direct Easy Access account from Bristol & West (0845 111 0114) and the SimplySave account offered by Birmingham Midshires (0845 602 2828), both of which pay 6.85 per cent.

When it comes to tax-free savings, the Chancellor, Gordon Brown, must be feeling a little disappointed that the supermarkets have not done more to promote what he promised would be tax-free savings 'for the many, not just the few'. Although well-placed to bring Isas to the masses, neither Sainsbury nor Tesco offers a cash-only Isa. This is left to Safeway, whose cash mini Isa, operated by Abbey National, pays 5.95 per cent on balances of £10 rising to 6.35 per cent on £3,000 and 6.65 per cent on balances of £6,000 plus. These are as good as the rates paid by Abbey National on accounts sold under its own name but not as good as the 7.25 per cent paid by smile (www.smile.co.uk) on Isa savings above £1.

If you prefer not to save in cyberspace you can still do better with the Bath building society, which pays 7 per cent on balances over £500 in its mini cash Isa (01225 423271) or with the Earl Shilton (01455 844422) which pays 7.1 on a mimumun of £1,000.

Although they haven't gone down the cash Isa route, both Sainsbury's and Tesco do offer low-charging equity-based Isas. Managed by its banking partner Bank of Scotland, Sainsbury's Direct Isa, which tracks the FTSE top 100 companies, has no initial charge, an annual management fee of 0.75 per cent and no minimum investment. The Tesco Growth Isa tracks the FTSE All-Share Index, while its Income Isa invests in quality corporate bonds and gilts. Both Tesco Isas - which are managed by Norwich Union - require a minimum investment of £500, incur no charges in the first tax year and an annual management fee of 1 per cent after that.