Mutual or speculative?

Small savers who find they can no longer maintain the larger minimum balances of pounds 500 or more which some building societies are demanding in order to discourage bounty-hunters are welcome at a number of other societies which have confirmed their commitment to remain mutual and ruled themselves out of the prize-givings, writes Clifford German.

Increasing polarisation between those societies trying to discourage myriads of small investors and those willing to welcome them - although without a promise of a windfall - could lead to massive flows of funds between societies. Almost 24 million accounts, about 39.4 per cent of the 62 million accounts in existence, contain less than pounds 100, Portman Building Society points out this week.

Between them they contain pounds 432m. Another 17.3 per cent contain less than pounds 500 each but between them they hold another pounds 2.7bn. If the pounds 500 minimum balance became general it could force more than 30 million investors to move accounts, shifting more than pounds 3 bn in the process.

The process gathered pace last week after Woolwich raised the minimum deposit needed for membership to pounds 500 and Chelsea upped its threshold to pounds 1,000. Other societies seen as most likely targets for a takeover, or for a spontaneous move to turn themselves into banks, will be forced by the sheer weight of numbers of new small accounts to raise their minimum balances in order to make it less attractive for speculators to open multiple accounts.

But some may secretly welcome new small investors because the cost of buying them out could become a significant deterrent to a predator.

Northern Rock, Birmingham Midshires, Alliance & Leicester and Nationwide are among the societies most tipped to be taken over or to go for bank status. Even Bradford & Bingley, which has taken the strongest line against changing its status, has attracted a surge in new deposits, which are time-consuming to open and expensive to administer. But several societies, led by Portman which is strongest in the South of England, have pledged to keep their doors open to the smaller investors.

Portman itself has attracted speculative inflows "despite the fact that we have insisted that mutuality is and will continue to be our chosen path", its spokesman, John Gully, said last week. In other words, it wants to remain independent.

Portman's minimum investment in its Instant Access Account is just pounds 5, but that attracts just 1 per cent interest. Anyone wanting a commercial interest rate of 5.2 per cent before tax does have to keep pounds 500 in the account.