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COMMENT
Today's newspapers (and yesterday's websites!) have all leapt on the fact that yesterday Barclays revealed that it had made an all-time record pre-tax profit of almost £5.3 billion in 2005. In fairness, less than half of Barclays' profit came from its UK banking arm, and two-fifths (40%) of it was made abroad, so Barclays is more than just a booming British bank -- it's also a thriving international company. Barclays is the first of the UK's five biggest banks to unveil its mammoth profit, up 15% on 2004's figure of £4.6bn. Hence, we should expect more record-breaking results from HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland/NatWest in the weeks ahead. Nevertheless, as I explained in Your Laziness Makes Me Rich, as corporations, banks exist for one reason, and one reason only: maximising returns to their shareholders is their sole legal and financial duty. Hence, much of these vast profits will be returned to banks' shareholders (including me*) in the form of dividends (the income paid by shares). So, if you're not happy with the bumper profits enjoyed by these shareholders, what can you do? The simple answer is to stop complaining and start switching! Here are three great alternatives to making banks and their shareholders rich: 1. Building societies According to trade body the Building Societies Association, there are 63 building societies in the UK, with assets of £260 billion. These range from the giant Nationwide BS (which is the UK's third-largest mortgage lender and has a branch on most high streets) to tiny local societies such as the Century, City of Derry and Catholic building societies. Building societies are mutual organisations, which means that they are owned by, and run for the benefit of, their members, and each member can vote at, and attend, meetings. About fifteen million adults have building society saving accounts and 2½ million of us are buying our homes using a building society mortgage. So, although building societies aren't "not for profit" institutions, they have no dividend-greedy shareholders. Hence, they normally offer cheaper mortgages and better savings rates than their stock-market rivals. Indeed, their rates often thrash those offered by the biggest banks, as I proved in Big Mortgage Lenders Provide Bad Deals! Check out the great rates in our Mortgage and Savings centres! 2. Credit unions Credit unions are community-based, mutual, not-for-profit financial operatives which provide savings accounts and unsecured loans to people with a common bond. For example, there are credit unions for people who live or work in a particular area, work for a certain employer, or follow the same occupation. Both the credit-union and building-society movements grew out of the collective, worker-based approach to finance which gained momentum in the Victorian era. Credit unions do a terrific job, especially in rescuing low-income families from loan sharks. What's more, as not-for-profit institutions, they offer cheap loans and decent savings rates to the general public, especially those who have been rejected by mainstream lenders. About two-thirds of adults (36 million of us) are eligible to join one of almost six hundred credit unions spread across Great Britain. Note that savers in credit unions are regulated by the Financial Services Authority and protected by the Financial Services Compensation Scheme, just as banks and building societies are. Use this search to locate your local credit union(s). 3. Zopa.com As I explained in this article, online lending exchange Zopa is something that could only come into existence thanks to widespread use of the Internet. Zopa does something really very simple: it uses the power of the Web to cut out the banks by matching lending members (people who need an unsecured personal loan) with saving members (people with cash to spare). In effect, Zopa allows person-to-person lending, so it's a kind of "eBay for money". Zopa makes its money from charging borrowers an exchange fee of 1% of their loan, plus it earns commissions from the sale of payment protection insurance policies. When Zopa launched, I loved the idea of cutting out the middlemen, but I was sceptical that it would catch on. However, it now has over 50,000 members, with thousands more joining every month. I'd really get a kick out of using my spare cash to open my own bank, so I'm going to join Zopa as a lending member. Now, who wants a loan from "The Bank of Cliff" -- don't all rush at once?!!! Need a personal loan? Check out the delightful deals in our Personal Loan centre! More: Let the Fool help you to find better mortgages, personal loans and savings accounts. Cliff owns shares in HBOS and Lloyds TSB.
