Don’t bother switching banks

Executive summary: If your savings are deposited in a UK retail bank, they are safe, and if you’re wasting your time transferring your money into UK government-backed savings or Irish banks you’re a muppet. Although if you’re super-paranoid then Ulster Bank might be worth a punt…


1) If your savings below £50,000 are deposited in a UK retail bank, they are no less safe than they were deposited in government-issued savings products. That’s because the only context in which you would not get your savings reimbursed in the event of bank failure would be if the government was so financially shafted that it couldn’t afford to do so, which is pretty much “tinned food, bottled water and a shotgun” time anyway…

2) With the government guarantee, your savings are probably slightly safer in a UK retail bank than an Irish retail bank, because there’s no way in hell the Irish government could possibly afford to keep its promises, whereas the UK government is slightly better placed to do so (also, the UK economy is slightly less shafted than the Irish economy).

3) Savings in a UK account above £50,000 are also effectively safe: it’s impossible to imagine any situation where the UK government would be able to reimburse savings below the limit and would not also compensate savers above the limit (they account for 2% of bank balances, so the cost to the government of providing the extra bail-out money would be negligible – but the confidence impact of not doing it would be dramatic).

4) Ulster Bank (RBS’s subsidiary in both Northern Ireland and the Republic) might get covered under the Irish plan as well as already falling under the UK scheme. While it’s unlikely that a catastrophic failure that led to the collapse of RBS and the UK government’s inability to bail out RBS depositors would occur without the Irish banking system also collapsing, it’s not completely impossible – so shifting your deposits to Ulster Bank if the deal goes through is the only way to (at least theoretically) enhance your risk profile…

4 thoughts on “Don’t bother switching banks

  1. About the only rationale I can see for the Irish government's decision (which I really can't fathom either) is precisely to mislead British savers into dumping their cash into Irish banks in the hope that might shore them up.

    Other than that, this guarantee runs a very real risk of bankrupting the country.

  2. Ta for comment re pensions. Your post on why private sector final salary schemes are dying out was added to my Words of Wisdom section long ago.

    My subsidiary point is that it would be dead easy for UK pension funds to circumvent the so-called Pensions Raid – they just have to move from investing in each other's shares to investing in each other's bonds. Two birds, one stone.

  3. Thing I should have said in this post that were obvious last week and have now indeed happened: none of the above applies to Icesave, because it's compensated by the Icelandic government and not the Bank of England, and if the big Icelandic banks fail the government will probably go bust too, so for the love of God get your savings out of Icesave. Err, sorry.

    (although in all honesty I'd be surprised if the BoE didn't end up bailing out savers in Icesave UK accounts, assuming the Icelanders fail to do so)

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