Monday, November 29, 2010

Are my savings safe in Irish banks?

The biggest question on the lips of many at the moment is quite simply, “how safe is my money?” With continuous bad news for the banks on an almost daily basis, it is natural for people to wonder how safe their savings and deposits are. Talk and fears of a run on the banks seem to be featuring in more and more private conversations and in some sections of the media. AIB and Bank of Ireland’s recent interim management statements also confirm the large outflow of deposits since June this year. No matter what their concerns are based on, people have genuine concerns over the security of leaving funds sitting with many Irish banks.

The general consensus from economists, politicians, EU officials, Central Bank officials and most financial advisors and commentators is that there is very little risk to depositors’ savings. Even Roel van Veggel, head of RaboDirect (the bank who has benefited most directly as depositors move their funds there) has said that it is unlikely that savers will lose out.

For many who have lost their jobs or seen the value of their home and pension funds collapse in recent times, it is of course natural that comments from the likes of economists and politicians may offer little reassurance. After all, why believe them now? And if the government, or anyone else, fails to provide the necessary reassurance, people will act on their own concerns. The problem is that a bank run is based on perception. Even if your deposits are safe but people perceive them not to be, the result will be that deposits are withdrawn from the banks and thus the danger that may only have at first been a perceived one then becomes an actual danger. i.e. during a bank run the banks lose their deposits and then as a result actually become unstable or bankrupt. A bank run can therefore become a self-fulfilling prophecy. People need to trust the banks and the government and let’s face it, trust capital is yet another asset which has sadly been almost utterly wiped out. With this in mind, the prospect of a bank run may not be that far-fetched.

If you are amongst the growing number that would prefer to be extra cautious and remove your savings from Irish banks, there are a few options open to you. Some of these include:

1. Rabo Direct. Rabo is a Triple A rated (the highest credit rating there is) Dutch bank operating in Ireland. It has consistently been considered to be amongst the safest banks in the world and being an online based bank, it is very easy to open an account. In fact Rabo also have a “Money Mover” product aimed specifically at ensuring ease of transferring funds to them from your existing accounts. . Rabo’s demand saver accounts interest rates are currently 2.0% AER – not the highest rate out there, which they admit themselves. However, in the current climate, the priority for many is now security and peace of mind rather than maximising interest rates. However Rabo do offer higher interest rates for their Term Deposit products i.e. accounts where you agree to lock your funds away for a minimum period of time e.g. 3 years, 5 years etc. (However if you expect that interest rates will rise over the next few years, you might not be inclined to want to lock too much of your funds away for too long a period).

2. Nationwide UK (Ireland). Nationwide UK have an Irish branch operating from Spencers Dock in Dublin. Like Rabo, Nationwide UK will also enable you to conveniently open an account via internet/post. They also offer a range of deposit interest rates although they do have a minimum deposit amount requirement, unlike Rabo.

3. Another option is to take a drive over the border into Northern Ireland and place your funds with a UK bank. However you are then also exposed to some currency risk as your funds will be converted to sterling.

4. There are also a number of off-shore account products available from many UK and other foreign banks such as Barclays or Lloyds. However just make sure to do your due diligence – which country are these banks regulated by, what are their credit ratings etc?

I must also revert to the point made about bank runs becoming a self-fulfilling prophecy. Some people may feel that withdrawing your funds from Irish banks will only be contributing to the overall difficulties that the Irish banks are in. There is truth in this. Also remember that the government guarantee for deposits up to €100,000 is still in place and this also has EU backing. The general consensus is that deposits are safe and savers will not lose out. However with the hardship that Irish people are now facing it is easy to see that protecting the security of your own savings against any risk (even if this is only a perceived and not an actual risk) is going to take priority over what may be a deemed collective good of trying to help the economic situation by leaving deposits with the banks.

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