The carpetbagger's life gets harder

Birmingham Midshires building society, which last week reignited speculation about further windfalls with an announcement that it plans to sell out to Royal Bank of Scotland, may offer its more recent savers as little as pounds 250.

Such a figure would be disappointing for the society's army of carpetbaggers, who have faced some of the highest opening balances to become members in the past year or so and who to date have been rewarded with generally uninspiring interest rates.

The average windfall is expected to be closer to pounds 700 and longer-term savers can expect to get higher payouts related to their balances.

More than 800,000 customers are expected to share in the payout, which is due in a year's time. The handout is likely to be in the form of cash or "preference" shares (a special type of investment paying a high income) rather than the windfall shares that have performed so spectacularly this year. Virtually all the society's savings accounts - including the Quantum- branded range, its First Class postal account and range of Tessas - will qualify. The only exceptions are expected to be offshore accounts.

To qualify, savers had to have pounds 100 with the society as of 22 July, when it closed its doors to new account openings. More than 100,000 borrowers with Birmingham Midshires mortgages will also be eligible, although 50,000 borrowers with mortgage companies bought by the society - UCB, MSL and Credit Agricole - will be excluded. The society will write to its members in the autumn and this letter may give more details of likely windfalls and when savers may be able to touch their money without affecting eligibility.

In the meantime the advice for savers should be to avoid making withdrawals and, if you do, ensure that you retain a qualifying account. Before making any withdrawal check what the account's minimum balance is: if you fall below this, you risk having your account closed and losing the windfall. If you want to switch accounts within the society, be sure to open the new account before you close the old one and try to get something in writing from the society confirming that your windfall eligibility will not be affected.

Borrowers who are close to repaying their mortgages should talk to the society about maintaining a minimal loan balance. If you are thinking of remortgaging, you need to weigh up the gains from switching against the potential windfall you might forgo. That said, it may still be worth switching, particularly for big mortgages.

Birmingham Midshires' payout, due in early autumn 1998, will bring to seven the number of windfalls from major building societies in the past year. With those from insurers, the number of handouts rises to double figures. The table gives details of expected windfalls yet to be paid out.

There are already savers who have pocketed in excess of pounds 10,000 from the rash of recent windfalls, and Birmingham Midshires is highly unlikely to be the last society or insurer to go.

Among societies, Midshires was one of the biggest remaining and had long been known to be open to selling out. The next may well be even smaller - the Skipton has privately admitted that it is not wedded to remaining a mutual, while the Portman has been named as another possible takeover target for Royal Bank of Scotland, which ideally would have liked to have done a deal with the Nationwide, the biggest remaining society.

In practice Nationwide will probably be around for a little longer following its half-victory in board elections against rebels demanding windfalls. It has just reopened its doors to new savers prepared to put pounds 5,000 into an account (pounds 3,000 for a Tessa), although it says it wants to reduce this figure.

Other societies also carry high opening balances aimed at deterring carpetbaggers or, in some cases, only allow local residents to open accounts. Even if you have the money, it is now more difficult to predict whether opening an account in the hope of a windfall is likely to be worth while overall, particularly given that more societies may follow the route of paying relatively low amounts to recent savers. With this in mind, savers should shop around the full range of accounts of any society they are targeting.

Similarly, taking a stake in a mutual life insurer - aside from committing yourself to a personal pension or a long-term savings plan - also requires serious money. Good bets for carpetbaggers with cash are what are called with-profits bonds. Past windfalls and the rules of most mutual insurers suggest these are almost certain to benefit from any handout. These offer a steady year-on-year return indirectly related to the performance of the stock market and over five years should give better returns than a building society account. NPI, Scottish Provident and Friends Provident are three of the hottest tips for windfalls, but their bonds have minimum investments of, respectively, pounds 2,000, pounds 3,000 and pounds 3,000. A Bath-based financial adviser, Chartwell Investment Management (01225 446556), is offering to refund its entire commission on these bonds of 5 per cent or more, in return for a flat pounds 30 fee for each.

But as with building societies, investors should try to consider whether the combination of any windfall plus the investment return will be a good use of their money, compared with anywhere else it could have been invested.

q For further windfall information, call Birmingham Midshires 0800 0681818; Northern Rock 0345 448866; Scottish Amicable 0345 888555; Australian Mutual Provident 0171 477 5600.

THE NEXT WAVE OF WINDFALLS

Converter Average windfall When due

Northern Rock pounds 1,400 shares 1 October

Scottish Amicable pounds 550 cash plus pounds 900 of bonuses October

Australian Mutual pounds 500 shares Mid 1998

Provident

B'ham Midshires pounds 700 Autumn 1998