Money: Check out the newest banks

The rivalry between supermarket chains and their diversification into personal financial services finally began to pay dividends for savers this week as Sainsbury's launched a new account paying 5.75 per cent to depositors.

The new rate from Sainsbury's Bank, paid on minimum deposits of as little as pounds 1 into its instant access accounts, ratchets up the store's war with its rival Tesco, which recently announced it is to pay 5.5 per cent gross to investors.

The importance of Sainsbury's move lies as much in its headline-grabbing rate on small deposits, as in the fact that the company also announced the launch next month of a Link cashcard, operating through 10,000 machines.

Sainsbury's new service, jointly organised with Bank of Scotland also involves BoS providing a freephone telephone number for all banking inquiries. Unlike some telephone banks, however, Sainsbury's will also provide a direct service to customers at its 244 stores, including Homebase DIY.

The newcomer's entry into banking, added to Tesco's own savings account, is dangerous for the big high street banks and for building societies. After all, what exactly are they offering that is so much better than their new rivals?

Woolwich and Alliance & Leicester have about 400-odd branches each, hardly that much more convenient than large stores visited every week by millions of shoppers.

The interest paid should hopefully lead to a dramatic upward revision in the interest paid by Barclays, NatWest, Midland, Lloyds and the other big institutions.

The key issue will be whether millions of savers, initially tempted to open accounts with Tesco or Sainsbury's while still keeping their old ones open, eventually decide to go the whole hog and switch all their financial transactions to the new operator.

If the new banks can provide a decent service to their new clients, there is no reason why they should not do that, other than a mild element of snobbishness. But at the end of the day, it is the pounds in one's account that matter, not whether the account is provided by one's grocer.

The incursion by non-traditional savings institutions into the marketplace continued this week with Scottish Widows, the mutual life insurer, increasing the rates paid on its instant access account by 0.1 per cent. The company has reduced its minimum savings rate to pounds 1,000 and now offers a rate of 5.25 per cent on deposits up to pounds 5,000.

While this bottom rate will not be of much interest to prospective savers, compared to Sainsbury's, on deposits of pounds 50,000 Scottish Widows pays more offering 5.9 per cent gross.

The company also offers a 60-day notice account, on which it will pay 6.05 per cent gross on deposits above pounds 10,000 rising to 6.1 per cent for pounds 25,000 up to pounds 50,000.

Mortgages, too, are an area where increasingly the battleground is not being left to traditional lenders. As building societies and supermarket chains turn into banks, insurers are moving into mortgage lending.

Scottish Widows has entered the market with a variable rate of 6.73 per cent, undercutting all other big lenders, whose charges range between 6.99 and 7.25 per cent. The company hopes its low rates will win it at least 10,000 borrowers this year.

Meanwhile, Prudential is pronouncing itself satisfied with the level of inquiries for its own mortgage products, claiming that it is processing 1,500 applications made in the three or four months since its own home loans service was set up.

At the same time, Standard Life, the largest mutual insurer in Europe, is also considering plans to launch itself into the mortgage market. The company aims to target potential re-mortgagees, particularly those with a good payment record and a loan-to-value rate of 80 per cent or less.

This target market, highly attractive to most lenders, can still command attractive little bribes, despite the recovering housing market. Among the options Standard Life is considering is paying the full legal fees of anyone switching their mortgage. This concession is worth taking up - but only when the actual mortgage rate is declared.