Supermarkets give the banks a run for their money

Once upon a time, supermarkets were for the sole purpose of buying your groceries. Now we are accustomed to them stocking clothes, homeware, electrical goods and even financial products on their shelves too.

But now these retail giants have gone one stage further by offering financial deals that beat your own bank. We take a look at why throwing a credit card, loan, savings account or even a mortgage in your trolley could these days be your best bet.

Sainsbury's launches two new cards

Credit cards is one of the main areas where supermarkets have been fast encroaching on banks' territory - and in recent weeks the threat has become even greater.

For example, Sainsbury's has unveiled its first Cashback Credit Card. The deal offers an eye-catching 5% cashback on all Sainsbury's shopping for the first three months (capped at £50 per month). The cashback you earn is credited into your account the following month.

In addition to this introductory perk, each month you spend at least £250 in Sainsbury's and £250 elsewhere on the card (easily done if you have a family to feed) you will receive £5 cashback.

The new cashback card also comes with a generous 15 months at 0% on balance transfers (for a 3% fee) and six months interest-free on purchases - handy if you have existing debt to clear or are planning on making a large purchase any time soon.

At the same time, Sainsbury's has also given its Nectar Credit Card an overhaul, which means it's become a lot quicker to earn Nectar points. Shoppers can now earn 10 points for every £1 spent at Sainsbury's during the first three months of opening the card - that's five times the points you would otherwise earn. After the first three months you will earn two Nectar points for every £1 you spend, which is still double the usual rate.

And if you use your Sainsbury's Nectar Credit Card outside the store or its forecourts, you will rack up one point for every £5 you spend.

If you get the feeling that most of your wages end up in Sainsbury's tills, the accelerated rewards are likely to be the main draw of the Nectar credit card. However, it also comes with the same 15 months interest-free period on balance transfers and six months interest-free on purchases.

Again, the representative APR is 17.9% (variable).

Stuart McKeggie, head of Sainsbury's credit cards said: "Both cards have been created with the Sainsbury's shopper in mind; we are offering our customers choice on how they earn and redeem their rewards.

"Our research shows that there are very few cards currently available that offer rewards of this value as well as offering competitive introductory periods."

Supermarket battling it out on reward cards

There are some, though - and unless you are a particularly avid Sainsbury's shopper, you could be better off with one of these alternatives.

Rival supermarket Asda, for example, entered the credit card market back in the summer with a deal offering an unlimited 1% cashback on all shopping and fuel purchases made in-store, as well as 0.5% cashback on any purchases made with the card elsewhere. The representative APR also stands at a reasonable 14.9% APR (variable).

Tesco also recently improved the terms on its Clubcard credit card for balance transfers. It now offers 22 months interest-free on debt transferred to the card (up to 95% of your agreed limit) for a 2.9% fee, as well as 0% on purchases for the first six months from the account opening.

And, as it says on the tin, the Clubcard credit card for balance transfers also doubles up as Clubcard - again providing loyal Tesco shoppers with more points than they would otherwise earn. You can earn five points for every £4 spent in Tesco stores, and one point for every £4 spent elsewhere. Other perks include the fact there is no fee when buying travel money using the card from Tesco Bank.

Earn while you spend - wider market offers

However, in both the reward and balance transfer stakes, Asda, Sainsbury's and Tesco can still all be outdone.

The current market leading balance transfer card is actually Barclaycard's Platinum Extended Balance Transfer which, in a bid to stay ahead of Tesco, recently put up its 0% balance transfer offering to 23 months.

This is the longest card of its kind available on the open market, and comes with a relatively low balance transfer fee of 2.8%. HSBC also offers 23 months at 0% on balance transfers, but this is only for existing customers and the fee is higher at 3.3%.

In terms of rewards, you can also do better than the supermarkets. The American Express Platinum Cashback card, for example, pays 5% cashback on the first £2,000 of spend on the card for the first three months. Cashback thereafter is paid at a rate of 2.5%. The card comes with a representative APR of 18.5% (variable) once the £25 annual fee has been taken into account.

Alternatively, Santander's 123 credit card pays 3% cashback on fuel spend (up to a limit of £9 a month); 2% cashback on department store spend and 1% cashback on spend in supermarkets - all to a combined cap of £300 a month. The £24 annual fee puts the representative APR at 22.8% (variable).

Shopping for a personal loan

However, when it comes to looking for a personal loan of between £7,500 and £15,000, you won't do better than the supermarkets. Tesco and Sainsbury's are both offering a market-leading 5.7% for this level of borrowing over one to five years and one to three years respectively.

Note, however, that Tesco will only guarantee applicants this rate until September 24 and you will need to hold a Nectar card to apply at that rate with Sainsbury's.

If you want to avoid supermarkets entirely, Derbyshire Building Society is offering a slightly higher rate of 5.8% on loans of that amount between one and five years.

Funding your home

As well as filling your kitchen cupboards with food, these days supermarkets will even fund your home itself. In the summer Tesco dipped its toe into the mortgage market, offering the kind of rates which could send shivers up the spines of the nation's banks and building societies. For example, it offers a two-year tracker deal priced at just 2.95% for a £995 fee and 30% deposit.

For this specific kind of deal, Tesco comes top of the tables, but it's still a good idea to shop around. If you can raise a bigger deposit of 40%, for example, HSBC has a term tracker priced at 2.64% for a £999 fee.

Supermarket savings

Supermarkets have had their fingers in the saving pie for some years now and if you trust the brand or simply find it convenient to pick up a deal when you are in store, one of these accounts is a valid option.

For example, Tesco is currently paying a rate of 2.60% on its Easy Access Internet Saver, which comes with a relatively small bonus of 1.35% for the first 12 months.

However, it's not the best on the market. The Post Office's Online Saver Issue 7 pays a market-leading rate of 2.95% with a 1.30% bonus for a minimum investment of £1, while ING Direct' Easy Access account pays 2.90% incorporating a 2.36% 12-month bonus. All three accounts can be opened for as little as £1.

Other stores

It's not just supermarkets that are causing the banks sleepless nights. M&S - known until relatively recently for socks and undies - is now well underway with its roll out of 50 'relaxed and modern' banking branches within existing stores in the UK.

Our site editor, Clare Francis, took a snap of her local M&S branch in Handforth Dean, near Wilmslow, Cheshire, which she said lived up to its claims.

But, as ever, the choice is yours.