Banking with brains?

The new telephone and internet bank Intelligent Finance says 'best buy' tables for mortgages and savings are giving consumers inadequate information.

The bank, known as IF, says the tables are unfair to accounts such as its own, which aim to maximise earnings and reduce costs for customers by offsetting borrowings against savings.

It claims they do not reflect the fact that 76 per cent of the UK population with two or more banking products would be better off moving their finances to IF than shopping for 'best buys'.

To back this up, it compared the top products listed in leading newspapers' best buy tables - information provided by MoneyFacts, Blays Guide and London & Country Mortgages - with its own products. The research, which considered various combinations of loans and savings, found customers could be up to ?337 a year better off by switching to IF.

Chief executive Jim Spowart says: 'Best Buy tables are widely valued by consumers. However, they don't provide the full picture. Maybe it is time for regulation.'

IF, a subsidiary of the Halifax, has developed the concept of 'connectivity'. The customer can include any combination of five products an IF account: a flexible mortgage, a personal loan, a credit card, a current account and a savings account. These can be 'connected' to cut the interest paid on borrowings, or to increase the amount earned on savings.

The balances in your current and savings accounts can be added together to produce a total which earns the maximum possible interest, ranging from an annual equivalent rate (AER) of 5 per cent on deposits of up to ?999, to 6.25 per cent gross on savings of ?100,000 or more. Alternatively, any borrowings through a mortgage, loan or credit card can be offset against your savings, thus cutting the interest you pay. For example if you have a ?60,000 mortgage and ?3,000 in your current account, your savings will be 'connected' to the mortgage, so you pay interest on only ?57,000.

Better still, any offsetting can be made against your most expensive form of borrowing. If you have an IF mortgage (discounted to 5.3 per cent for six months) and a personal loan (10.5 per cent APR), you can connect your savings to the personal loan and pay less interest.

The concept is not entirely new: First Active and Virgin One have offered integrated mortgage and current accounts for several years. But IF is the first to enable customers to keep their borrowings and savings in separate, identifiable 'pots' which earn, or charge, interest at different rates.

The idea has proved convincing. Since its launch in late September, 50,000 IF accounts have been opened - more than one a minute - and it has approved more than ?500,000,000 in mortgages.

Spowart wants Best Buy information providers to introduce a table for integrated accounts, or to print a warning to readers that 'best buys' may not provide them with the best possible financial results.

However, John Woods, chief executive of MoneyFacts, says: 'Best Buy charts can only compare like with like. It would be totally misleading for any chart to show IF savings rates at 10.8 per cent. Customers can only get this on all their savings with IF if they have credit card borrowings of at least the same amount. How many people would ever have this?

'For people with a lump sum to save, there are better rates available. IF's savings rate at ?5,000 is 5.65 per cent, while Abbey National is paying 7 per cent.'

People with low savings but large borrowings are likely to do better with a separate mortgage and a long-term discounted rate.

Although the IF account includes a flexible loan with 1.5 per cent off the standard variable rate of 6.8 per cent, this lasts only six months.

Ray Boulger of independent financial adviser John Charcol says: 'People with mortgages in six figures will find they get better value by having separate mortgage and savings accounts.

'The exception is big hitters in the City earning large bonuses which are put into their IF account and drawn on throughout the year.'

If you are not in the high bonus or high savings categories, Boulger says you may be better off with a mortgage whose discount lasts two or three years. For example, Britannia building society offers a 2.4 per cent discount from its standard variable rate of 7.64 per cent for two years on sums worth up to 75 per cent of a home's value.

• For further information on IF call 0845 609 4343 or visit its website at www.if.com.