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 ||100%|
|Anglo Irish Bank||Financial Regulator ||100% |
|Irish Life & Permanent||Financial Regulator ||100% |
Bank of Ireland
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 |
|Postbank||Financial Regulator||€100,000 |
|Ulster Bank Ireland||Financial Regulator||€100,000 |
|Source: itsyourmoney.ie |
* 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.