Supermarkets v the banks

However, their creeping move into investments is raising eyebrows among advisers, who also warn there is a risk private investors could be tempted to buy in to the new products at the wrong time.

Darius McDermott at Chelsea Financial Services said: “Conventional wisdom suggests it is best to avoid bonds when inflation and interest rates are rising, or set to rise, as over time your fixed interest will look less attractive.

“If interest rates go up as the market expects, it is unlikely the new bond products from John Lewis or Tesco will look so healthy in a couple of years.”

A range of investment funds from M&S Money has also been a disappointment for investors, with almost two-thirds of them underperforming over the past three years, according to Chelsea Financial Services.

John Lewis

The high street bellwether’s only foray into financial services until now, apart from insurance, has been its Partnership credit card. It offers one loyalty point for each £1 spent in store or online at John Lewis, John Lewis Insurance and Waitrose as well as greenbee.com and ocado.com, with one point for every £2 spent elsewhere. For every 500 points collected, holders earn £5 in vouchers, which can be spent at John Lewis and Waitrose.

The card has 0% interest on purchases for six months, after which interest is levied at 16.9%. Experts say the card is useful only if you do a lot of shopping at Waitrose or John Lewis and you pay off your balance in full each month.

Justin Modray at Candid Money, the adviser, said: “The 16.9% interest rate on the Partnership card is expensive compared with, say, the 12.9% on the Halifax Clarity credit card. Borrow £1,000 over a year and the Partnership card could cost about £35 more than Clarity.”

The John Lewis corporate bond is available exclusively to Partnership card holders and those with a John Lewis account card. It is available until April 11 but may be closed earlier if it is oversubscribed.

The 6.5% annual headline interest rate is made up of 4.5% in cash and the remainder in gift vouchers. The minimum investment is £1,000 and the maximum £10,000, (in increments of £1,000). Your capital will be tied up for five years and the bond cannot be transferred or redeemed before maturity, or held within a tax-free Isa wrapper.

Patrick Connolly at AWD Chase de Vere, the adviser, said: “Paying part of the return as John Lewis vouchers sounds like a gimmick and may not be suitable for many investors, especially as this will still generate a tax liability.”

The net return on the Partnership bond, including vouchers, is 5.2% for a basic-rate taxpayer and 3.9% for a higher-rate one. This contrasts with the 5% tax-free paid by the top five-year Isa from Skipton building society, which allows you to deposit £5,100 this year.

It is crucial to note that your money would be at risk if John Lewis were to get into financial difficulties. Corporate bonds do not have the same protection as cash deposits, which are guaranteed up to £85,000 by the Financial Services Compensation Scheme if your bank or building society goes bust.
Verdict: Look elsewhere

Tesco Bank

Tesco’s savings accounts can easily be beaten elsewhere. For example, the Tesco Internet Saver pays 2.7%, including a 12-month bonus of 1.45%. However, the top instant-access account — West Bromwich building society’s Websave — pays 3.01% on balances of £1,000 or more. It includes a two percentage-point bonus until March 31, 2012. By contrast, the Tesco Clubcard credit card is one of the market leaders for purchases, with 13 months interest-free. After that, the rate reverts to 16.9%.

The card allows you to collect one Clubcard loyalty point for every £4 spent. Tesco converts these into Clubcard vouchers at the rate of £1 for 100 points.
Verdict: Credit card among the best

Clark saves on travel expenses with the Gold credit card from Sainsbury’s Finance (Peter Tarry)

M&S Money

As with the other supermarket banks, the savings products from M&S Money are reasonable, if not market leading. For example, the Flexi Cash Isa, which accepts Isa transfers and allows instant access, pays 2.65%, including a 1.25-point bonus for 18 months. This compares with the best Isa rate for transfers, which is 3.1% from Nationwide, including a 1.35% bonus until July 31, 2012.

However, the M&S credit card is the top choice for purchases, offering 15 months interest-free. After that, the rate is 15.9%.

You collect points when you spend, which are converted to M&S vouchers every quarter. The card gives one point for every £1 spent at M&S or for every £2 spent elsewhere, with 100 points worth £1 in vouchers.

M&S branched out into the investment market in 2007, offering a range of funds managed by HSBC. These can be held inside or outside an Isa.

At present, investors with an M&S credit card are being enticed with the prospect of earning 5,000 loyalty points — worth £50 — if they invest £5,000 or more by April 3.

However, research by Chelsea Financial Services has found that 60% of the M&S fund range has consistently underperformed the average in the relevant sector for the past three years.

The M&S High Income fund, which invests in corporate and government bonds to provide a high level of income, has grown only 5.7%, against almost 12% for the average strategic bond fund.

McDermott said: “Good active management requires talented fund managers working with analysts and efficient back and middle offices. It is not merely a case of farming out mandates to existing managers and hoping your brand name will drive demand. The underperformance across the range of investment products from M&S highlights this lack of expertise.”

M&S Money said: “Each of the M&S funds has its own investment objective and benchmark. We are happy that each fund is being managed and is delivering according to the objectives specified at the outset.”
Verdict: Best for credit cards

Sainsbury's finance

The supermarket’s finance arm lowered the representative rate on loans of £7,500 to £14,999 from 7.2% to 6.9% last week but only for holders of its Nectar loyalty card.

The rate drops to 6.8% if they choose to repay the loan within three years rather than over longer periods. This makes it the market leader according to Uswitch, the comparison site.

While Sainsbury’s savings rates are nothing to shout about — 2.5% a year on its Easy Saver, with up to five withdrawals annually — its credit cards are more competitive.

For example, the Gold credit card aimed at holidaymakers levies a very low interest rate of 9.94% on purchases and balance transfers, though there is no 0% introductory offer.

It includes travel insurance for two adults and up to six children, including winter sports cover and levies no foreign exchange or cash advance fees in Britain or abroad. The catch is that it costs £5 a month.
Verdict: Best for loans

Gold is just the ticket

Holly Clark, 36, from Clapham, south London, saves money on travel expenses with the Gold credit card from Sainsbury’s Finance.

For a £5 monthly fee, the card gives Clark, her husband, Justin, and their daughter Beatrix, 2, annual family worldwide travel cover and levies no charges on foreign exchange. It also offers double Nectar loyalty points on Sainsbury’s shopping.

Clark, who works in marketing, said: “I’m from Australia and still have a lot of family there, so I use the card to send presents back home.

“As I use all the benefits, I find the £5 monthly fee reasonable.”