No sooner have we got over the insurance companies joining forces, but now the Birmingham Midshires Building Society has followed suit. Members have voted to accept a £750 million takeover bid triggering a million windfall payouts ranging from £1,250 for long-standing investors, to £400 in preferential shares for borrowers and recent investors.

While the demutualisation of such institutions gives rise to a handy windfall to some, should we, as a nation, really be putting the majority of our savings with them when returns can be far from attractive? In fact, if you consider the implications of the difference between the best and worst rates available on a £10,000 investment, we can see a difference in cash terms of around £340 per annum net of basic rate tax (Source: Moneyfacts November 98) not to mention the effects of inflation on the capital over time.

So where does the average man or woman in the street trust their hard earned cash, particularly in the present economic climate? Let's look at some of the options:

l The Rainy Day Fund: traditionally, the good old bank or building society account has been favourite for this type of saving. Postal accounts and accounts with institutions that don't have High Street branches (thus keeping costs and charges down) often offer higher returns, and remember, keep your eye open for better accounts offered by your existing society as you may be able to switch without penalty.

l The Income Generator: extra income is often a requirement for the over 50's and retired people. A medium term investment such as a Maximum Investment Plan or With Profits Bond does not rely on stock market performance. Running for around five years, an investor can often take between five per cent and seven-and-a-half per cent of the initial investment as income per year without affecting the capital. A number of insurance companies offer these products, many with no initial charges and over 100 per cent of the fund invested from day one.

l The Nest Egg Builder: when a lump is required in the longer-term future, Traded Endowments can provide impressive growth. These are endowments taken out by an individual which have since been sold before their maturity date and offered for sale again. They can have anything from two-and-a-half and 16 years left to run, but according to market makers, traded endowments over the last nine months have produced returns in the region of 10.58 per cent of basic rate tax (Source: Beale Dobie September 1998).

For a free factsheet on the Investment Pyramid call 01484 860123.

Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.