Are your savings safe?
Joanne Enright MSc QFA MSI, Financial Advisor at CML Financial answers your financial queries. This week we look at your savings in the bank - are they safe?
Question
I have my life savings in a bank deposit account which until recently I had thought was the safest option. However with the continued scandals emerging from Irish Banks I am now very worried that my bank may go under and that I will loose my savings. Am I right to worried?
Answer
As news stories continue to be dominated by what on face value appears to be fraud within the banks, your concerns are justified. However, stepping back from the headlines your deposits have some level of protection.
Since last September deposits with Allied Irish Bank (AIB), Anglo Irish Bank, Bank of Ireland, Irish Life & Permanent, Irish Nationwide Building Society, EBS Building Society, ICS Building Society and Postbank Ireland have been fully guaranteed under the Government Guarantee Scheme, regardless of the size of your deposit. This guarantee will remain in place until September 28th 2010. In the doomsday scenario where the guarantee had to be called upon the Government have said that they would pay depositors "as promptly as possible".
Last month, Anglo Irish Bank, the bank at the centre of the scandal, was taken over by the State, often referred to as "nationalised". Depositors with Anglo Irish Bank are now in a similar position to those with savings in the other State owned institution, the Post Office Savings Bank. While these institutions remain in State ownership their deposits are 100% State guaranteed. Just to be clear, this is different to the Government Guarantee Scheme discussed above, which is only in place until September 2010.
There are a number of banks operating in Ireland which are neither State owned or covered by the Government Guarantee Scheme. Instead most of these banks are covered by the "Deposit Protection Scheme" (DPS). Banks covered by this scheme include ACC Bank, Bank of Scotland (Ireland) which trades as Halifax, KBC Bank (formally IIB Bank), First Active and Ulster Bank (which are now effectively one). Credit Unions are also covered under this scheme. The main difference with the DPS scheme is the amount covered: 100% of deposits up to a maximum of €100,000. Therefore if you had more than €100,000 in a deposit account or if you had two or more accounts holding in excess of €100,000, with a bank covered by the DPS that subsequently fails the maximum compensation you would receive is €100,000.
There are also banks operating in Ireland which are not covered by either the Government Guarantee Scheme or DPS because they are licensed and regulated in other European countries. There are a number of banks regulated by the British Financial Services Authority operating here. Its Financial Services Compensation Scheme covers savings of up to 50,000 maximum (€54,000 approx) per person.
Examples include Investec Bank and Leeds Building Society. Northern Rock also accepts deposits in Ireland but as it was nationalised last year deposits with it are guaranteed in full by the Bank of England and the British Treasury.
Other European banks operating here are covered by their national schemes. An example is National Irish Bank, a subsidiary of Danske Bank, which is covered by the Danish deposit protection scheme. In October 2008 the Danish government adopted a similar approach to Ireland and guaranteed all deposits regardless of size for the next two years. Thereafter Danish deposit protection covers about €40,000 with the Irish DPS covering the balance up to €100,000. Online bank Rabo Direct is another example of a European bank operating in Ireland. They are licensed by the Dutch Central Bank which provides full compensation up to a maximum of €100,000.
In the current climate the focus of depositors has moved to security rather than the interest rate on offer. As can be seen above different banks offer differing levels of security. Depositors need be aware of the security on offer when considering where to hold their money, and if your bank does not offer full security for the amount you have on deposit you should give serious consideration to moving or splitting it across other banks to ensure it is fully secured.
The Financial Regulators web site www.itsyourmoney.ie is a good source of information on the banks.
For further information on any of the above contact:
CML Financial, Independent Financial Advisors, The Business Centre, Lisfannon, Buncrana, Co. Donegal, T: +353 (0)74 9364255 F: +353 (0)74 9361955
CML Financial Limited t/a CML Financial is regulated by the Financial Regulator
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Sunday 27 May 2012
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