James Daley: Ireland's pretty safe, but not watertight

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The Independent Online

Thousands of British savers who put their money with Anglo-Irish Bank have found themselves in something of a quandary over the past few weeks – after discovering that their deposits would no longer be covered by the UK Financial Services Compensation Scheme.

The good news, allegedly, was that they would, instead, be covered by the equivalent Irish scheme – which guarantees the first €100,000 (£90,000) of deposits should the bank go bust. This is considerably better than the UK scheme's £50,000 guarantee.

Then, on Thursday, came the news that Anglo-Irish was to be nationalised by the Irish government – a move that effectively gives savers an unlimited guarantee. So, surely this makes Anglo-Irish one of the very safest places to put your money? Not necessarily.

Whether Anglo-Irish is in private or public ownership has only a marginal bearing on the security of depositors' money. Any country's compensation scheme is only as strong as its government – and while the UK scheme is backed by the fifth largest economy in the world, the Irish economy is some 10 times smaller, and is thus that much more vulnerable.

The question savers in Anglo-Irish now need to be asking is this: if the banking system of Ireland were to suffer an Icelandic-style collapse, would the Irish government be able to ensure that every Anglo-Irish customer got every penny of their cash back? And the answer? Who knows? However, Ireland's relatively small size means that there has to be a chance that in the worst-case scenario, the Irish government would not be able to meet all of its commitments.

The quandary for UK customers of Anglo-Irish with fixed-term savings accounts, is whether to stay or go. Those who stay are bearing a greater risk than keeping their money in a UK-domiciled bank. However, those who withdraw money now risk losing the interest they have accrued over the past few months.

The chances of a complete Irish banking collapse are remote, and there is a high chance that the British government would rescue UK depositors. Yet those who trusted their money to Icelandic bank branches in the Channel Islands and Isle of Man are still fighting to reclaim their savings. If you don't want to take risks, keep your money in a British bank or building society.

More strife for Equitable Lifers

It was gratifying to see the Government finally apologise to the thousands of people who lost out from the collapse of Equitable Life this week, but devastating to watch Chief Secretary to the Treasury Yvette Cooper push the prospect of compensation payments even further into the future. Many of those affected by the collapse of Equitable have suffered hardship for years, and more than 30,000 have died without receiving a penny. Now that the Government has admitted maladministration, it should set up an emergency compensation fund. Sadly, the Government knows that the longer it drags its feet, the less it will have to pay out, as another 15 victims of the fiasco die every day.

j.daley@independent.co.uk

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