The announcement is a further indication that many of the country's financial institutions are battling for survival as the economic crisis continues. The merger of Britannia and Co-op will create a business with £70billion of assets and nine million customers. This new organisation will still be significantly smaller than Nationwide, the country's largest building society which has nearly £200billion in assets and 15 million customers, but the combined group will be in a stronger position than if the two mutuals remained separate businesses.
Kevin Mountford, head of banking at moneysupermarket.com, said: "This is another merger born of weakness and it is indicative of the tough environment we're currently in. It's also unlikely to be the last as banks and building societies fight tooth and nail to stay afloat. We'll see the results of all the recent mergers filter through to the consumer as the year progresses. The worry is that fewer players in the market will be bad news for the consumer because rates on savings deals and mortgages could become less competitive, so individuals really need to keep an eye on the rates their accounts are paying and move to better deals if necessary."
Other building society mergers include Nationwide's takeover of Cheshire and Derbyshire, the merger between Yorkshire and Barnsley and that of Skipton and Scarborough.
We answer your questions about today's announcement from Britannia and Co-operative.
Why are Britannia and Co-operative Financial Services merging?
Financial institutions of all sizes are struggling to cope with the ongoing credit crunch and financial turmoil. The decision by the boards of Britannia and Co-operative to merge the two institutions indicates that they feel the creation of a larger business is essential to secure the future survival of the groups and their brands.
When will the merger happen?
The boards of both companies are recommending that members vote in favour of the merger, but the deal can't be cemented until a change in legislation that is due to be passed in March. At the moment, the law prohibits such a merger as the two businesses are different types of mutual (a mutual is a company owned by its members, not shareholders) - Britannia is a building society, while CFS is a consumer co-operative. The planned change in the law will mean mergers between different types of mutuals can take place.
Members are expected to vote on the proposed merger between Britannia and Co-op in April. Assuming the deal between Britannia and Co-op is approved, it will take three years for the process to be completed.
What will it mean for customers?
The businesses intend to keep all their existing brands - Britannia, Platform, Co-operative Bank, Smile, Co-operative Insurance and Co-operative Investments - so customers should see no change to their product names.
As far as the future is concerned, the head of both companies promise a 'new way of doing business'. Rodney Baker-Bates, chairman of Britannia, said: "The combined and complementary strengths of our businesses will offer customers a strong, fair and ethical alternative to banking plcs. Customers will be owners and will have available all the services they would expect from a major financial provider, together with a real say in setting strategy combined with a share of the profits."
Eyes will be watching to ensure this is not just rhetoric. Mountford added: "We are told that this will present a new way of working but we have yet to see whether this will represent better value for the consumer. We will be watching closely to ensure that this is not just hot air - it is certainly going to take something special to convince customers that the merged organisation truly has their best interests at heart."
How do their products compare with the rest of the market?
With interest rates at a historic low and further rate reductions likely, savers need to ensure they are getting the best returns possible. While some of Britannia and Co-op's deals aren't bad, others look quite poor in comparison with other products in the market.
Both Co-operative Bank and Britannia are paying 1.50% on their easy access cash Isas, but you can get 3.50% from Leek United building society. The rate on Co-op's Smart Saver account, a standard easy access savings account, is even lower at 1.0% - ING Direct has the highest-paying easy access account at 4.0% although this rate does include a 12-month introductory bonus. Britannia has quite a competitive easy access account. Its DirectSaver Reserve Account pays 3.50%, so not far off the market-leading rates. However, this rate also includes a bonus and it only lasts for six months. Once the introductory period is over, the rate drops to 2.50%.
Mountford said: "Existing customers of both organisations should take this opportunity to check whether they're getting a good deal and switch to more competitive accounts if necessary."
What protection will savers have?
Under the terms of the Financial Services Compensation Scheme, the first £50,000 held with a single institution that is registered with the Financial Services Authority (FSA) is totally guaranteed. Britannia and CFS have confirmed that they will each retain their FSA registration, which means that a customer who has a savings account with both Britannia and CFS will have £100,000 of protection.
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