Money Express: How safe are your savings under the Bank Guarantee Schemes?

By the time you read this the fate of Cyprus will have been settled and from my current vantage point it looks like its depositors will be taking a substantial loss of their savings – perhaps only over €100,000 – as well as sacrificing some of their gold reserve, private semi-state pensions, a higher corporation tax and other concessions.

By the time you read this the fate of Cyprus will have been settled and from my current vantage point it looks like its depositors will be taking a substantial loss of their savings – perhaps only over €100,000 – as well as sacrificing some of their gold reserve, private semi-state pensions, a higher corporation tax and other concessions.

Money Express with Jill Kerby sponsored by Laya Healthcare

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What the Cyprus parliament overwhelmingly rejected they may very well accept with some amendments, but the alternative would be to probably have to leave the eurozone, though not the EU itself.

Whatever the outcome from today (Tuesday), the Cypriot banking and financial services industry, a less successful version of our own IFSC – is finished. Trust and confidence, the lynchpin of banking simply no longer exists there.

The capital controls that (I expect) have been imposed in Cyprus to stop a rush to transfer savings out of the country means it will take a long time to restore that confidence.

Faith in the sanctity of the euro itself, and the credibility of bank deposit guarantees will certainly be shaken in the rest of Europe too.

It is this element of the Cyprus crisis that savers need to address here, especially those with sums over €100,000 in AIB, Bank of Ireland, ESB and Permanent TSB.

Many of them now have their own critical deadline to consider – the end of the Eligible Liabilities Guarantee on Thursday, March 28.

Money left in term accounts for up to five years in qualifying ELG covered bank deposit accounts have been 100% guaranteed and will continue to be until their five year term ends.

However, any funds that are no longer under the ELG from Thursday must act to otherwise secure them as well as they can.

The standard €100,000 deposit guarantee scheme (DGS) is still in place, but (as in bankrupt Cyprus) the Irish state does not have sufficient money in the Central Bank’s €388 million deposit insurance fund, in which banks make a paltry 0.2% contribution every year, to honour losses of up to €100,000 if an Irish bank ever did fail.

There is currently €102 billion in household deposit accounts.

Also, it has now emerged that thousands of depositors in IBRC (formerly Anglo Irish Bank) who invested in tracker bonds with capital guarantees, but which had not matured before the recent liquidation of IBRC – have discovered that the guarantee for the first €100,000 of their money has not been honoured. Others, who bought Anglo Irish 5-6 tracker bonds (some as pension products) and even invested far more than €100,000 have lost huge sums.

Total IBRC deposit/tracker bond losses, could amount to €93 million, €15 million lost by Credit Unions members who bought the trackers through their local CU branch.

The ELG will end on Thursday but the following options should be considered by ALL depositors:

Be aware that all deposits and pension funds could be targeted as part of future EU bailouts for insolvent banks or member countries;

Capital and currency controls could be imposed in any EU country and not just Cyprus, to stop people transferring out funds (despite the EU principle of free and open trade.)

Aim to leave your savings in the most solvent or highest investment grade institutions possible.

No Irish banks qualify, but investment grade deposit takers include Danske Bank, RaboBank, Nationwide UK and UlsterBank.

The €100,000 deposit guarantee is only as good as the ability of the bank or the Irish state to stand over it, as IBRC depositor/tracker holders have discovered to their cost. All savings are at risk from taxation. Since 2009 DIRT has risen from 20% to 33% and from next year will be subject to 4% PRSI increasing the total tax to 37%.

All savings are liable to inflation risk: the spending value of your savings falls as inflation rises – this is a hidden tax.

Most financial advisors consider a 5%-10% holding in gold/silver will act as a hedge against the risk of taxation, and currency/capital debasement by central bankers to save bankrupts institutions and savings. (Check out www.goldcore.com).

Worried savers in Portugal, Spain and Italy as well as Slovenia and Malta, also due bailouts have been already moving their money out of the reach of their politicians/central banks.

Yet, there are few currencies considered particularly “safe” anymore and all banks are lowering interest rates. Bonds are not particularly safe anymore either, warn advisors as that price bubble intensifies.

Anyone concerned about the safety of their cash or their pension funds should seek an independent fee-based financial review from an experienced advisor and aim for a solid, long term, diversified asset and maybe even geographical solution that suits their age, risk profile and needs.

If there is one rule we should learn from the Cyprus, where the bank crisis has been festering for a year, it is procrastination is the worse response of all.

jill@jillkerby.ie