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The Chelsea building society has announced plans to merge with its smaller rival the Catholic building society.

The companies' respective boards agreed "in principle" to the deal, with talks still in early stages.

Under the proposal the Catholic would transfer its engagements to Chelsea on a date to be determined.

Discussions between the two societies are continuing and further details of the proposed transaction will be announced in due course.

It is likely that bonus payments will be made to members of the Catholic.

In this event, the first qualifying date for such bonuses will be May 31st 2008.

This means that only those shareholding and borrowing members who had a qualifying savings or mortgage account open with the Catholic on that date will be eligible to receive bonuses.

"We are looking forward to finalising the terms of the transaction with the Catholic and to welcoming the Catholic's members into the Chelsea family in due course," said Trevor Harrison, Chelsea's chairman.

The Chelsea is the sixth biggest in the country, with approximately £13 billion in assets.

The much smaller Catholic is considered the 57th biggest in the UK, with just £44 million in assets.

The Catholic was set up more than 40 years ago to help people on low incomes, single women and widows to buy homes, has just one branch in Westminster and employs only seven staff.

It presently has around 3,500 members.

Commenting on the deal Clare Whittaker, Catholic's chairman, said: "We are delighted to have chosen Chelsea as our merger partner.

"The Catholic and Chelsea have much in common and share common values around mutuality and people," she concluded.