The Safest Places To Deposit Your Money

As the financial turmoil continues, where are the safest places to put your money?

As banks go to the wall, it's only natural that savers will fret about their cash.

The simplest solution to this problem would be a complete savings guarantee by the UK government. In other words, the government would promise to fully compensate all savers if a UK bank went bust. In exceptional times like now, I think such a guarantee would be justified and Fool.co.uk has already called for one.

Sadly, Gordon Brown hasn't so far issued such a guarantee. So I thought I'd look at the most secure homes for your savings right now.

Up to £35,000

Regular readers will know that we've written a lot about the current guarantee.  When  a UK bank fails,  up to £35,000 of your savings are protected. The guarantee is per person, per bank, although there are some exceptions - see this article for more on that. Gordon Brown has said that the figure will be increased to £50,000.

This guarantee is operated by the FSCS (the Financial Services Compensation Scheme), and I'm in no doubt that savers would be compensated if a UK bank went under. The only possible problem is that savers might not receive their cash for some months.

The FSCS hasn't had to pay out for Northern Rock, Bradford & Bingley (B&B) or HBOS. That's because the government has come up with other solutions. It fully nationalised Northern Rock; the savings arm of B &B has been sold to Abbey; and HBOS is probably going to be sold to Lloyds TSB.

I believe that the government would facilitate similar solutions should any other bank hit trouble, but there is no explicit government guarantee. So some savers will understandably worry.

So what can you do?

Well, you could move your money to Northern Rock. Now that it's owned by the government, savings at The Rock are fully protected. The only downside is that the rates on its accounts aren't that high.

Similarly, all products offered by National Savings & Investment  (NS&I) are 100% safe as it's also owned by the government. But once again the rates on some products aren't that high.

The Irish guarantee

There is another option. You could save with one of the six Irish banks that will be fully protected by the Irish government's new savings guarantee which covers all deposits. The banks are Allied Irish Bank, Bank of Ireland, Anglo-Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and Educational Building Society. Accounts at the Post Office are operated by the Bank of Ireland so they're protected.

Looking at those banks, we like the Anglo Irish Bank Easy Access Deposit Issue 2 which pays an attractive 6.4% with no annoying penalties, notice periods and so on hidden away in the small print.

But even with the Irish banks, there is a potential problem - the EU might force the Irish government to withdraw the guarantee as it arguably gives Irish banks an unfair competitive advantage. On the other hand, that advantage might disappear if other European governments followed Ireland's lead and introduced a 100% guarantee.

Absolute safety

So if you're looking for absolute safety, Northern Rock and NS&I look to be your best bets.

But I won't be transferring any of my wealth to either institution. If another UK bank hit trouble, I'm convinced that the government would once again facilitate some form of bailout and my savings would be secure. And if I'm wrong about that, I'd still be compensated by the FSCS which would be fine as my savings amount to less than £35,000.

I think it's crucial that we don't panic. No UK saver has lost any money during the turmoil that started with Northern Rock, and I don't see that changing.

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