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money talk.

THE credit crunch is unnerving small savers, who are sitting on pounds 2 trillion worth of deposits at banks and building societies - and switching billions into what they see as safer havens.

Northern Rock, where savers got a Treasury-backed guarantee on all deposits when the lender was rescued by the Government last year, is withdrawing some accounts to new customers and reducing rates on others to remain within its stated target of 1.5% share of the savings market.

Geoff Tresman, chairman of financial adviser Punter Southall Financial Management, said Northern Rock's move was to be expected because it could not be seen to use the security of its government backing to gain an unfair advantage.

"Many people are fearful their money will be used to prop up the banks, quite understandably when they have taken a lifetime to build nest eggs," Tresman said.

"But the reality is that deposits with banks and building societies have an explicit government guarantee that everything up to pounds 50,000 of their deposits will be guaranteed, and an implicit guarantee that everything above that is covered too. It would be political suicide if any depositor lost as much as pounds 1 in a bank collapse. It just won't happen."

The Irish Government's decision to stand behind all deposits held by the republic's six largest banks provides a refuge for savers on this side of the channel.

The Post Office, which formed a partnership with Bank of Ireland in 2004, has launched a new Growth Bond paying 6.75%over one year and 6% over three and five years, on minimumpounds 500 deposits. All money in this Growth Bond is fully covered by the Irish Government guarantee.

So too is money in the Post Office Instant Saver account, paying 5.75% (including a 1.5%bonus for 12 months) which will track the Bank of England base rate until 2010 and take deposits up to pounds 1m.

National Savings is also a safe haven for cash, again because of government guarantee. But recent rate cuts might suggest that it, too, is flooded with new deposits.

Savers maximising income can also use the Investec Private Bank's High 5 Account, where the interest rate is adjusted weekly when Moneyfacts, the financial data agency, calculates the average rate of interest paid by the top-five savings accounts.

On minimumpounds 25,000 deposits held on 90-day notice, Investec currently pays 6.57% gross (5.23% net) annual interest and 6.35% (5.1%) monthly interest, direct to a nominated account. Investec is also governed by the FSCS compensation scheme.

INFORMATION: The Post Office (0845 722 3344); Investec Bank (0845 366 6633).
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Copyright 2008 Gale, Cengage Learning. All rights reserved.

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Publication:Wales On Sunday (Cardiff, Wales)
Date:Oct 5, 2008
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