Cash clinic: Is there any hope of bagging new building society windfalls?

Q IN THE early 1990s I was an unashamed "carpetbagger" and put £100 into accounts with a number of different building societies to gain membership in the hope of benefiting from future windfalls, which I did in the case of several of them when they either demutualised or were taken over by other banks or building societies.

Recently, however, a number of the societies with which I still have accounts have been taken over by others (e.g. Derbyshire, Cheshire) without any windfall to members, and others have merged with other organisations, again with no benefit payable.

I still have a number of accounts with societies of varying sizes and structures all earning very low levels of interest. Do you consider it worthwhile holding on to these accounts or do you think the days of the windfalls are now well and truly over?

DF, Glasgow

A THERE is no clear answer as to whether windfalls are now a thing of the past, but the frequency may reduce for the foreseeable future.

In the current climate, takeovers and mergers seem a marriage of convenience, as potential buyers seek to cash in on the opportunity to increase their asset base by acquiring distressed building societies.

Building societies on the acquisition and merger trail will draw attention to cost synergies that will in theory see them offer more competitive interest rates to their customers. Those in a position to merge or take over market competitors will argue that they can offer better client service by eliminating any duplication of services or by complementing one another.

Nevertheless, with market valuations being at the lower end it is not a favourable environment in which to list on the stock exchange. Of course this may change as prices stabilise and the economic recovery continues.

As windfall payouts are not calculated by a prescribed model, it is impossible to estimate the amount that customers potentially stand to receive. You are currently earning low levels of interest but have no clear time horizon in which you could stand to gain from potential future payouts.

A clear strategy would eliminate the speculative element of potential windfalls payments as your "ultimate achievable return" and instead set out what can actually be achieved by way of higher interest rates or potential growth through stock-market exposure.

It would be a mistake to view a windfall payment as a return on investment, but the negligible amounts of interest you currently receive are certainly an opport-unity lost to achieving higher rates of return. Apart from not capitalising on the higher rates of interest, you are probably also subject to tax on all interest paid.

An individual savings account (Isa) would be a tax-efficient alternative of holding your funds, either in cash or stocks and shares.

When formulating a savings and investment policy, we consider the tax-efficiency of savings/investment vehicles we use, albeit without letting the tax tail wag the investment dog. In your case, it may well be the windfall tail.

You should also note that any investment decision you take should take account of your wider financial picture so a comprehensive review with a suitably qualified adviser should be considered.

• Christian Poziemski is a financial adviser in the private client and financial services division at HBJ Gateley Wareing.

• If you have a question, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: jsalway @ scotsman. com.

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.