Is there a single brand in Britain that touches every person’s life and that is trusted accordingly? If so, it has to be the Post Office – hence the misery and protests caused by the authorities’ insistence on closing down so many branches. Good news then that the government has now offered the PO a lifeline. At a time when we are all rather disillusioned with the banks, the Post Office is to get £180m to help it increase the financial services it offers and so compete with the high-street banks. Think savings accounts, current accounts and many more mortgages.
So what can we expect to result from this? Cynics might say nothing at all – anything reliant on cash offered now has to be seen as more electioneering than real policy. Still, if we assume that the announcement has been made in good faith, it is interesting. The Post Office already has a history of offering good deals: it has been the second-most consistently competitive mortgage lender behind First Direct this year, for example. And news this week that it is dropping its rates means it offers market-leading two and five-year deals.
The two-year fixed-rate mortgage for people with a 25% deposit comes in at a very competitive 3.15%. And those with 40% to put down can get a five year 4.59% fixed-rate deal. Given these rates, all eyes should be on the terms of the 90% mortgage deal the PO is about to launch. Anyone looking for a 90% deal might be wise not to lock themselves in elsewhere until they’ve seen them.
Post Office savings products aren’t bad either. Its one-year bond is the best on the market with a 3.3% interest rate. And the 3% it offers on cash Isas is pretty good too. However, before you hand over your life savings, be aware that despite the fact that the PO is owned by Britain, its financial services are offered in conjunction with the Bank of Ireland.
Hence, deposits are guaranteed under the Irish government’s compensation scheme, rather than the UK’s Financial Services Compensation Scheme (FSCS). That means that deposits made before 29 September 2010 are completely guaranteed, no matter how large, and that deposits made after that date are protected up to the first €100,000. That sounds fine and it probably is: it is just worth remembering that if there is a problem (the Bank of Ireland lost €2.97bn in the nine months to 31 December) you might have to get your money back from a foreign government.
On the plus side, mortgage holders have no such worries: in the unlikely event of trouble at the Bank of Ireland, they’ll just be paying the receivers instead.