Questions of cash: 'Why is the Post Office casting savers adrift?'

Q. I invested in a Post Office Bond in October 2008, aware that my money would be invested by the Post Office with the Bank of Ireland. The printed material from the Post Office said I was "saving with the Post Office". On 15 January, I received a letter using the Post Office logo stating that, because the level of protection under Ireland's Depositors Protection Scheme had been increased by the Irish government to €100,000 (£94,000), the Post Office would "no longer [be] part of the UK Financial Services Compensation Scheme". My investment is instead covered by the Irish scheme. The Post Office seems to regard itself just as an introducer of business between individuals and the Bank of Ireland and is casting savers adrift without accepting responsibilities towards us. This will not do – I invested with them because I trusted the Post Office and I believed that I was protected by the UK Financial Services Compensation Scheme. ML, Norfolk

A. The level of compensation afforded by Ireland's Deposit Protection Scheme was raised again on 31 December and is now unlimited. This compares with the limit provided under the UK's Financial Services Compensation Scheme, which is currently £50,000 per investor, per institution. The FSCS explains that the Bank of Ireland was always only a partial member of the FSCS system. Any compensation payable to customers, should the Bank of Ireland default, would previously have been covered by the Irish system up to its limits – with the FSCS topping this up to its protection limit. When the Irish system adopted a more generous limit than that of the FSCS, the FSCS scheme became irrelevant. A spokesman for the Post Office adds that customers "should be quite happy about this" increased level of guarantee. Your concern may be related to press reports questioning the strength of Irish public finances and wondering whether the Irish government would be able to honour its guarantees. This follows a negative outlook warning issued by the Standard & Poor's credit ratings agency. Neither the Post Office nor the FSCS is willing to speculate what would happen should the Irish government be unable to meet its guarantees – which is not a likely outcome at this time. Any default by the Irish government, should one happen, would be subject to inter-governmental negotiations. The Bank of Ireland failed to respond to repeated requests asking whether customers can close their accounts without penalty given the changes in compensation scheme arrangements.

Q. Last September, my 61-year-old sister asked me where to invest some money and I suggested the Anglo Irish Bank. She then invested £35,000 on a one-year term deposit. At the time, the Anglo Irish Bank belonged to the UK's Financial Services Compensation Scheme, so on that basis the investment was risk-free. Recently, the Anglo Irish Bank left the protection of the UK scheme: this decision was taken without any consultation or agreement with UK investors. In my view, the terms of the contract have been broken because one party to the contract – Anglo Irish – decided to withdraw from the FSCS. Irrespective of the reasons behind the decision, such action was unexpected and unsettling to investors. Is it therefore reasonable for an investor to ask for the return of their investment immediately and without loss of interest? BH, Bristol.

A. Both the Anglo Irish Bank and the FSCS argue that there is not a fundamental change to your account, as the support provided by the FSCS was only ever a "top-up" to the Irish deposit protection limit. Anglo Irish insists that the terms and conditions of your account are not affected by either the move to the Irish system of deposit protection, or by the bank's recent nationalisation by the Irish government. This means that Anglo Irish is not prepared to allow customers to withdraw funds without penalty and loss of interest. But it says it is willing to discuss with customers any concerns they have, or requests to close their accounts.

Q. I have received a letter from the Anglo Irish Bank saying that the UK Financial Services Compensation Scheme ceased to apply to it on 28 November, when the Irish government increased its compensation level to €100,000. I spoke to the UK FSCS, which confirmed that if Anglo Irish were unable to repay investors, the scheme would not make a payment. According to the terms of my Anglo Irish account, it can impose charges if I choose to close the account early. I feel that this is a betrayal by both Anglo Irish and the UK Government. Our leaders have been irresponsible in issuing a guarantee that has been rendered worthless and they have further compromised savers by being unclear about whether they would compensate them if Ireland did not. Neither attitude promotes trust or stability. UK savers should have sufficient information to decide whether to close our accounts with Irish banks, while sacrificing a competitive interest rate for the next year or more. EJ, London.

A. The FSCS points out that Anglo Irish were only ever partially covered by its scheme, as "top-up" members. Any failure would in the first instance be subject to the Irish system of deposit protection, with any "top-up" provided by the FSCS to its compensation limit. It argues that on this basis it is not letting down UK customers of Irish banks. It should also be stressed that the FSCS is independent of the UK Government, financed by the financial institutions – though some of its decisions have been influenced by the Treasury. The UK Government has therefore not issued a guarantee to protect savers at the Anglo Irish Bank.

A spokesman for the Treasury said: "The UK Government can only protect consumers who bank within its jurisdiction and the Financial Services Compensation Scheme only applies to bank accounts within the UK. It is important to remember that no British retail depositor has lost out because of recent bank collapses."

Compensation schemes

Savers who deposit their money into UK branches of European banks are protected in the first instance by the depositors' protection scheme in the country where the bank is domiciled. If the protection scheme has a maximum payout of less than £50,000, then the UK Financial Services Compensation Scheme will top up savers' compensation, to a maximum amount of £50,000.

In many European countries, the depositors' protection schemes only promises to pay out 90 per cent of the first €20,000 (£18,800). However, this does not mean that UK savers stand to lose 10 per cent of their money. The UK scheme will also compensate British savers for the 10 per cent of the first €20,000 that is not covered by the European depositor protection schemes.

Last week, we suggested that savers who kept their money with the Bank of Cyprus and other European banks could potentially lose up to €2,000 of their savings in the unlikely event that the bank was to go bust. In fact, British savers have a 100 per cent guarantee for the first £50,000 of their deposits with these institutions.

We apologise for any confusion this caused.

Questions of Cash cannot give individual advice. But if you have a financial dilemma, we will do our best to help. Please email us at: questionsofcash@independent.co.uk

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