Should I move my money into an Irish bank?
Savers in Britain today are nervous; the continuing speculation over the stability of our banks and building societies, the nationalisation of two leading high street names in less than a year, and fears of more to come have led to a significant number of savers moving their money in order to reduce their exposure to any one firm and keep each balance under £50,000 (the Financial Services Compensation Scheme limit).
Despite the Financial Services Authority (FSA) increasing the British protection limit from £35,000 to £50,000, British consumers may still be concerned that any money over this limit could be lost should their bank fail.
However, there are a few alternatives. Northern Rock and National Savings & Investments both benefit from 100% protection, as a result of their unique backing by the Treasury.
And, following the Irish government increasing the protection limit to 100% of savers’ money, British consumers could also cover their backs by moving their cash into of the following banks:
Firms covered by Irish government 100% guarantee
|Allied Irish Bank||Financial Regulator
|Anglo Irish Bank||Financial Regulator
|Irish Life & Permanent||Financial Regulator
Bank of Ireland
|EBS Building Society||Financial Regulator
|Irish Nationwide Building Society||Financial Regulator||100%
|Post Office||State body||100%
Firms covered by Irish Deposit Protection Scheme (max. €100,000)
|ACC Bank||Financial Regulator||€100,000|
|Bank of Scotland (Ireland)||Financial Regulator||€100,000
|Danske (National Irish Bank)||Danish Financial Regulator||€100,000
|First Active||Financial Regulator||€100,000
|ICS Building Society*||Financial Regulator||€100,000
|IIB Bank||Financial Regulator||€100,000
|Pfizer International Bank Europe||Financial Regulator||€100,000
|Ulster Bank Ireland||Financial Regulator||€100,000
* ICS has applied for full guarantee
Moneysupermarket.com says it has already seen evidence of savers follow this route and moving their money westwards to Ireland. But is this strategy one we should all be following, and what are the risks involved?
Firstly, rate. During this time of high inflation, it is important to keep your cash in an account where it grows in value rather than diminish. Of course, during these troubled times many savers would rather opt for security over returns, but moving your money into a lower interest account might not be the best thing for you in the long-run, so think before you switch.
Nicholas Burton, senior marketing manager at Norwich Union’s offshore bond business, says he expects rates on Irish saving banks to slash their rates in light of more business coming their way. “With the potential for more money to suddenly come flowing in, banks will not be able to keep interest rates at their current level,” he explains.
Currency could also be an issue for British savers moving their money to an Irish bank. Although most of those with UK subsidiaries, such as Anglo Irish Bank, will allow British savers to keep their money in sterling, this is not necessarily true for all Irish banks, with offshore bond accounts sometimes converting your money into euros or even American dollars.
Keeping your cash in another currency could be a risky policy, with fluctuating exchange rates eating into your hard earned. The strength of the euro against the pound at the moment also means you could end up losing out if your cash is converted into Irish currency.
Is it enough?
The move by Ireland to protect 100% of savers’ money follows an earlier measure to protect up to €100,000 (approximately £78,700). However, it has now taken the extra step of guaranteeing all money “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.”
Irish finance minister, Brian Lenihan, unveiled the plan to guarantee €400 billion of Irish bank liabilities last weekend. But this estimated amount doesn’t taken new money coming in from British savers into consideration.
So, even with the 100% guarantee, how safe are Irish banks?
Burton says prior to the Irish government upping the protection limit, the general appetite for Irish cash bonds among offshore cash bond customers was waning.
He explains: “The fact that Ireland is in a recession, and concerns about its property bubble, meant many offshore bond investors were looking at cash accounts elsewhere – what we call the drift to quality.
“The change to protection limits in Ireland has reversed this trend, with investors now believing that Irish accounts represent quality because they are guaranteed. Whether this is the case or not remains to be seen.”
And Kevin Mountford, head of savings at Moneysupermarket.com, believes that there is a question mark over the stability of Ireland’s economy, which has grown very quickly in the past couple of decades and is reliant on international investment. He points out that now the money markets have dried up, the Irish government's need for cash investment is mounting, so encouraging savers to bank with Irish institutions through a 100% protection limit should help ease liquidity issues.
“But what if an Irish bank does fail – does the government have the funding available to meet its 100% guarantee?” he asks.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
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.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.