The Co-op reported a boom in the sales of bank accounts in the first half as savers flocked to safe and stable brand names amid the turmoil of the credit crunch.

But Co-operative Financial Services (CFS) was hit by the liquidity crisis, writing off a further £25 million on structured investment products in the six months to July 26. The Co-op reported a pre-tax profit of £73.4 million, up 93per cent on the first half of last year. Profits at the banking division rose from £45.5 million to £46.2 million.

David Anderson, the chief executive of CFS, said that the bank had been boosted by a flight to quality in the wake of Northern Rock's collapse and writedowns at other high street banks. “People were thinking that they'd prefer to go to a traditional brand in the circumstances,” he said. Current accounts rose by 50 per cent and mortgage sales were up by 120 per cent.

The bank funds all its mortgage lending with deposits so it is not heavily exposed to the wholesale borrowing market that almost closed during the credit crunch.

But the Co-op invested £63 million in structured investment vehicles - high risk investments often backed by residential mortgages - on which it wrote down £25 million. On top of previous writedowns, this takes its remaining exposure to £6.4 million.

The bank also won customers after running its first TV advertising campaign in ten years. It topped polls by Which?, the former Consumers' Association, and beat Nationwide Building Society to top spot on a JD Power survey of bank customer satisfaction.

Bad debts fell from £53.2 million to £43.3 million and Mr Anderson said mortgage arrears should not be blamed on the rising cost of home loans: “Loan arrears are much more about inflation - food prices and energy prices. It's the general economic pressure that is creating arrears. Mortgage rates have gone up a little bit but historically they're not high.”

The general insurance business made a £1.5 million loss, down from a £33 million loss last year on weather claims. The business has been restructured to get out of riskier types of insurance such as motor cover that allows anyone to drive an insured car, and into safer lines such as named driver cover.

Mr Anderson said that the insurance business would be in profit at the end of the year. Its claim ratio was 74 per cent, down from 93.5 per cent.

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