Money: Should you sign up with a stranger?

Every time you see a fantastic offer on a credit card or investment, the likelihood is that it comes from a firm you have never heard of. Sun Bank and Investec Bank often top the best-buy savings tables (see page 15), but they aren't exactly household names.

In the last few years the ranks of financial companies have been swollen by overseas banks, fund managers and credit card issuers. The latest to join this crowded field is life insurer Colonial, which has just launched a fund management arm, Colonial First State Investments. You may not have heard of it, but First State has pounds 17.5bn under management worldwide, and was 1998 fund manager of the year in Australia.

Many of the "new" credit card issuers, such as Capital One and Bank One, are large banks in the US. Capital One started life 11 years ago as part of a small bank in Virginia; it now has 18 million customers in the States.

Some investment names are familiar in the City, but new to the public. Morgan Stanley Dean Witter, for example, is a giant American investment bank which has only recently set up an arm to sell products direct to UK investors.

If you are interested in an unfamiliar company, you should start by checking that it is authorised for the type of product it is selling. For deposit accounts and other banking business, banks and building societies need to be licensed deposit takers. This area is policed by the Financial Services Authority, which also regulates investment companies and financial advisers. The FSA offers a helpline for investors to check on a firm's credibility before parting with any cash.

For home loans, a company should be a member of the Council of Mortgage Lenders and subscribe to voluntary regulation through the Mortgage Code. Intermediaries such as brokers do not have to subscribe to the code, but borrowers should only deal with one that does.

A credit card company or an organisation offering loans - be it a bank, shop or other outlet - needs a licence under the Consumer Credit Act and must state that on its literature. Card companies are also part of the Visa or Mastercard network (American Express has its own network). These have their own rules and standards, which banks must meet. "Any card which is issued with a Visa or Mastercard logo is likely to be from a fairly significant company," says Nick Cobban, director of the Credit Card Research Group (CCRG). "The public may not be familiar with the bank, but it must be a fairly big player."

For relatively simple products such as a credit card or a travel insurance policy, price will be the deciding factor. Insurance brokers may recommend companies that are cheap, but not well-known to the public. "A broker will always look for better value for the client," says Jennifer Weller at the British Insurance and Investment Brokers' Association. It is not in the broker's interest, she says, to sell policies from companies that have a poor claims record or are hard to deal with.

For investments and pensions, performance is far more important than a big name. If you haven't heard of a company being recommended, find out about its financial strength. You can download company information and performance tables from the internet.

The FSA helpline for checking on authorised companies is 0845 606 1234 or, on the net, www.thecentralregister.co.uk

Details on the Mortgage Code are available on the Council of Mortgage Lenders' website: www.cml.org.uk. To check if a lender or broker is registered, call 01782 216300.

Comparative investment and savings tables are available on www.moneyextra.com at Moneyextra. For unit and investment trusts go to Trustnet at www.trustnet.org.uk

WHO ARE THEY?

Banking and savings

HFC Bank. Owned by US banking operation Household International, which provides consumer finance, loans and credit cards in the US and Canada.

Investec. A South Africa-based bank whose total assets under administration exceed pounds 32bn.

Sun Bank. Part of Sun Life of Canada, it became a UK bank in 1989. It has pounds 691m under management.

Credit cards

Capital One. Began issuing cards in the UK in 1996. Started 11 years ago as a subsidiary of Virginia-based Signet Bank, and spun off in 1994. It has 18 million customers in the US.

Bank One. Based in Chicago, Bank One is the fifth-largest bank in the US, with assets of more than $260bn (pounds 158bn).

Investments

Morgan Stanley Dean Witter. MSDW has only just started to target private investors in the UK, but is one of the longest-established fund managers in the US.

Johnson Fry. One of the UK's last remaining independent fund managers. It manages more than pounds 1bn.

Colonial First State Investments. Colonial, its parent company claims to be Australia's fastest growing financial services provider. Worldwide, the group manages more than pounds 17.5bn.