Money Tips Network

The TSB

The big retail banks have faced increasing competition for the deposits of ordinary individuals. The challenge of the building societies has already been mentioned. There are other long-standing competitors of which perhaps the most important is the Trustee Savings Bank (TSB). Trustee Savings Banks were set up in the nineteenth century to collect the savings of small depositors who did not have enough money to be attractive to the larger banks. The banks were run by ‘honorary trustees’ who invested the depositors’ funds in gilt-edged securities and paid the interest thus earned to the depositors. In the 1860s, there were over 600 banks but this number fell to 20 in the mid-1970s as the banks merged.

In 1982, their organization was changed from a federal structure into a holding company (TSB Group plc) with subsidiaries. Thanks to the Trustee Savings Bank Act of 1976, they no longer have to invest all their money in government securities and can now lend to private customers. The new TSB is pushing hard to rival the traditional banks, helped by its long-standing hold on the savings of the working classes.

The TSB went public in 1986, after a lengthy legal dispute over who actually owned the bank. Once floated, it splashed out buying a find manager (Target) and a merchant bank (Hill Samuel), and was quickly beginning to resemble the other major banks, both in its activities and in its ambitions.

Post Office

It occurred to nineteenth-century governments that small savers (some of whom are depositors at the Trustee Savings Banks (were a very useful source of funds for the National Debt (the gap between the government’s revenue and expenditure). At the time, the nation’s private banks served only a very select band of customers. The government accordingly opened up the Post Office Savings Bank to tap these funds. It soon became the nation’s largest repository for savings, thanks to the advantage of a large number of branches. Not always the most competitive of banks, it paid a standard interest rate of 2.5 per cent from around 1900 until 1970.

Following a change of name to the National Savings Bank, the government had offered a wide variety of savings schemes from Index-linked SAYE (Save As You Earn) to Granny bonds. Although these were rather more competitive than the Post Office used to be, the government’s healthy finances (and a general fall in private saving) kept National Savings out of the limelight.

In Post Offices, customers can also get access to many banking services through the Girobank, which at the time of writing was in the process of being sold to the private sector.

Finance Houses

The finance houses have traditionally been involved in the financing of hire-purchase agreements between customers and retailers. The interest on such agreements is quite high and the business potentially profitable. However, over the years, successive governments have placed increasing restrictions on consumer credit as an anti-inflationary measure. Many consumers have switched to credit cards as a means of financing large purchases. As a result, finance houses have become less significant in the consumer market and have concentrated on lending to companies, through techniques like leasing and factoring.