Get 100% protection on your savings
Savers could now benefit from 100% protection against a bank going bust as long as they are with an Irish bank.
Just last week, the Irish government increased the deposit protection limit to €100,000 (approximately £78,700. However, following further turmoil in the banking sector, it has now agreed to protect 100% of savers’ money.
The scheme, put in place with immediate effect, will protect savings with the vast majority of Irish banks - including their subsidiaries overseas.
This effectively means that savers could have all their money 100% guaranteed should their bank go bust, and not just up to £35,000 (£50,000 from 7 October) as currently guaranteed under the British protection scheme, the Financial Services Compensation Scheme.
This means that British savers with Allied Irish Bank, Bank of Ireland (which also provides savings accounts for the Post Office), Anglo Irish Bank will now have their money guaranteed in the event of the firm going bust as all these firms have subsidiaries in the UK.
Irish Nationwide Building Society, despite having no branches in the UK, says that any British saver could open an account with it via post and by covered by the scheme.
However, Dave Keenan, director of communications, people and change at the Educational Building Society, which also does not have a UK presence, says it is not yet completely clear whether British savers who open an account will be covered by the scheme or not.
This is a major boon for savers with more than £35,000 (£50,000 from 7 October) in cash, as it means that they do not have to spread their money across several different firms or risk keeping it all in one place.
The guarantee will cover all branches with these banks until 28 September 2010 meaning British savers could take advantage of this as well.
Anne Mathews, spokeswoman for Bank of Ireland, has confirmed to Moneywise that the Irish scheme will apply to British savers with its subsidiaries.
The Irish government decided to issue the guarantee following advice from the governor of the Central Bank and the Financial Regulator about the impact of the recent international market turmoil on the Irish Banking system. Ireland recently went into recession following two quarters of negative economic growth.
However, it does not apply to the liabilities of Ulster Bank, National Irish Bank, ACCBank or Rabobank, as they are all supported by large overseas parent banks.
National Irish Bank, which is owned by Denmark’s Danske Bank, is attempting be included in the scheme, following an application to the Irish Department of Finance. Early indications suggest it will be accepted.
Other safe havens
Ironically, one of the other safest homes for your money is Northern Rock, the Newcastle-based bank that, last September, suffered the first bank run in recent history and was subsequently nationalised.
The Financial Services Compensation Scheme (FSCS) guarantees all savings in the UK up to £35,000 per customer per bank (£50,000 from 7 October). But following the run on Northern Rock, the government stepped in and offered its customers a guarantee to protect 100% of their deposits.
This means that all money deposited in Northern Rock is protected by the government.
Following concerns that this unique position gave Northern Rock a competitive advantage over other saving players in the market, the government tweaked the rules and banned Northern Rock from taking an unfair advantage.
As a result, Northern Rock has agreed to keep its market share below historical levels, never exceeding 1.5% of the UK market (0.8% in Ireland). Previously, it has a 1.9% market share in the UK and 1.3% in Ireland.
This means is can never offer a top three best-buy savings account for the remainder of 2008.
So, while 100% of your savings are protected within Northern Rock, and not just your first £35,000, the rate you earn might not tempt you across.
Another firm that guarantees 100% of your money is National Savings & Investments (NS&I) because it is backed by the Treasury.
NS&I started life in 1861 as the Post Office Savings Bank, a savings scheme set up by the Palmerston government to saving and provide a fund for the chancellor to borrow from and put towards public spending.
Of course, this additional protection does come with a catch; NS&I’s rates are far from being among the most competitive available, so if you want to take advantage of added protection you’ll have to sacrifice return.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.