The Irish bail-out provides a stark reminder that your savings may not be safe in the hands of European-based banks. So should you take your money out and put it in a bank that’s protected in the UK?
The issue of trust has been at the front of savers’ minds over the past few months, as the Irish economic crisis has once again raised questions about how safe our money is when left in the hands of banks both at home and abroad.
Irish banks have offered some of the most attractive savings rates in the UK over the past few years. But just how safe is your money in them today?
Post Office savings saved
The biggest Irish savings provider in the UK is the Post Office, which since 2004 has sold savings accounts provided by the Bank of Ireland.
Until November of this year, the only protection that Post Office savers could count on was the Irish Depositors’ Protection Scheme, which was reliant on the backing of the Irish government. So if the Bank of Ireland had gone bust and the government wasn’t able to fund its compensation scheme, Post Office savers may have lost some or all of their cash.
Since November, however, Post Office accounts have come under the protection of the UK Financial Services Compensation Scheme (FSCS) meaning that even if the Bank of Ireland and Irish government were to go bust, the first £85,000 of savers’ money would still be protected.
But for savers who still have money in banks such as Anglo Irish – or other Bank of Ireland accounts that aren’t covered by its new FSCS protection – the situation is still precarious. The EU’s bail-out of the Irish government means that Ireland has been stabilised for the time being, but it’s an economy that’s in intensive care. As a result, any money sitting in Irish banks is still potentially at risk.
Take your savings out of EU banks?
Our advice to people looking for good savings rates is not to be tempted by the Irish banks – or any other EU banks that aren’t participants in the FSCS.
Perversely, it’s safer for savers to put money into an Indian bank such as ICICI than it is to put money into EU-based banks. This is because non-EU banks are forced to set up UK authorised subsidiaries, which are part of the FSCS.
EU banks, however, can operate in the UK without being part of the UK’s scheme, leaving savers to rely on the protection provided by the country where the bank is domiciled. So in the case of the Bank of Cyprus, for example, the safety net is provided by the Cypriot government.
Our advice is to put your savings in banks that have full UK FSCS protection. Why should savers have to make decisions about the financial strength of individual governments when deciding where to deposit their money?