For now, they remain the focal point of almost every financial worry at present worldwide. At Advisors.ie we are getting calls from clients on a daily basis who are worried about their savings, wondering if their money is safe, and they ask us what they should do in order to protect themselves.
We are not going to assume that anything will or won’t happen, instead we will answer the common questions and try to offer some perspective so that you can make the right decision for your own situation – because ultimately people need to make their own call.
First of all consider deposit guarantee schemes.
A Deposit Guarantee Scheme acts as a safety net for bank account holders in case of a bank failure. If a bank is closed down, the scheme is to reimburse account holders of the bank up to a certain coverage level.
A 1994 Directive ensures that all EU Member States have Deposit Guarantee Schemes in place, Ireland has one that was increased to €100,000 per institution which is the European standard.
If a bank did fail the time it would take to get your money according to European Memo/10/318 is seeking to have that brought down to just one week. And only last month that changed when MEP’s voted on the 24th of May to reduce that time to just 5 days (it only kicks in fully from 2016 – but you would still be guaranteed up to €5,000 within 5 days and the rest within 20 days).
The guarantees in Ireland are split between the regular guarantee (of €100,000 per account holder per bank) and the ELG or ‘Eligible Liabilities Guarantee’ which offers unlimited cover.
The ELG was updated in September of 2010 and offers cover of up to 5 years in maturity in participating banks as long as the deposit was made before the 31st of December 2011 cut off.
The ELG may well be continued past the cut off date if there is EU state aid approval, so the basic belief we have is that deposits are safe up to €100,000 and beyond that we would advice that people hold their deposits with a bank covered by the ELG.
Having said that, if you are still concerned then you can always move your money away from Irish institutions all together, and that is a choice people can make. We do believe that the guarantee offered is good and would hold in the case of a bank closing.
The guarantee does hinge on the Irish sovereign, and the strength you put on an Irish guarantee, if you have no faith in our state then the guarantee doesn’t mean anything.
If you opt for a UK operation then remember that you are covered by the UK Financial Services Compensation Scheme which can pay compensation to depositors if a bank is unable to meets its financial obligations. Currently, the maximum level of protection is £85,000 GBP per eligible depositor, per credit institution, nowhere near as good as the Irish guarantee but UK banks are internationally considered to be better capitalised.
There is a difference between putting your money in a ‘non-Irish bank’ and being ‘offshore’. The former is an institution that isn’t domained here but that operate in Ireland (Investec & Nationwide UK Ireland), offshore means the money you put on deposit is actually in a different country (Barclays Offshore & Deutchebank Germany).
The fact is that people are moving money out of Irish banks and Ireland generally, but much of this is irrational fear, our opinion is that the Europe would not allow a situation to develop where depositors are not paid, in fact, the most recent debate is whether to copy the Hungarian approach of all deposits being guaranteed in full for any balance.
Recent Central Bank figures show that there is still €92 billion of household money on deposit in Ireland, that should be some indication of confidence.
While it is prudent to hedge your risks, we cannot responsibly claim that it is necessary to move money out of the country at present, there are risks to Ireland and the Euro, but there are also foreign exchange risks to putting your money in other currencies and going to other banks can often mean lower returns, seek advice, but do so knowing the facts.