Is It Safe To Lock Your Savings Away?

Hi,

This is addressed to the owners of Motley Fool, and to also be shared with everyone.

In the text on this page, 'Are bonds a good idea' it is stated, and I have copied and pasted it: -

QUOTED
In relation to fixed rate bonds, if the bank in question goes bust, the FSCS will effectively take over your bond for the remaining term. If no access to your money is permitted at any time before maturity, you will need to wait to the end of the term before you can make a claim under the FSCS for compensation. You will then be entitled to claim for the capital deposited in your bond plus the interest you would have earned over the term up to the new maximum of £50,000.

Would the owners of Motley foll please clarify the questions below as I find it a bit misleading, and so may others:-
DOES THIS MEAN THAT THE MAXIMUM OF £50,000 INCLUDES THE INTERST EARNT OVER THE PERIOD, OR ANY INTEREST IN ADDITION TO THE £50,000?
WHAT IS THE SITUATION WITH JOINT ACCOUNTS, IF THERE IS £50,000 INVESTED IN EACH NAME?

At the time of writing this, Germany and Denmark, have also joined Ireland in guaranteeing 100% of savings of a failed bank. Unfortunately we have dithering Gordon Brown and Alister Darling (Scrooge and son of scrooge) who like Nero are prepared to fiddle while Rome burns.

Thank you, and to Motley Foll for a great web site.

The maximum of £50,000 included capital and interest so if you had a deposit of £49,000 and accrued interest of £3,000 you would lose £2,000. The maximum for joint accounts is £100,000
Remember it has to be in one institution registered with the FSA rather than one bank. So for example a First Direct account and an HSBC account are with the same institution and you could not get full compensation if you held £50,000 in each.

LOL at how we keep being told how "attractive" and "generous" savings rates have become, with lenders scrambling to woo the thrifty.

Yeah, right.

Do the maths. Inflation is officially 5%, more like 10% for some of us. The withholding on bond interest is 20% for basic rate taxpayers. The best rates quoted here are just over 7% gross. The status of some of these banks (Kaupthing Edge, anybody?) is not exactly triple-A any more.

Generous, schmenerous. A one-year lock-in now virtually guarantees capital loss in real terms. It was better earlier in the decade when inflation was almost non-existent.

Banks are still playing savers for fools. Index-linked with the unlimited faith and credit of HM Government seems the only sure thing.

I wish TMF would start thinking in after-tax purchasing power terms on their readers' behalf, and stop hailing the best of a bad lot as if they were panaceas.

Three months ago, I moved all my SIPP managed fund holdings to a Deposit fund within the same management. Clearly I am considerably better off at this time for having done so. Can any one tell me whether this is a safe home for my pension?

Hi Luniversal, and thanks for the excellent comments, which I fully agree with (copied and pasted below). It will be interesting to see wha happens to interest rates when the BOE meets this Thursday, as since the Labour Government came to power gave them the authority to set the rate, savers have been suffering, with mediocre rates.
I suppose we will have the usual clamore from Blanchflower to slash the rates, which he normally does, regardless of the current financial climate.
I wonder why Blanchflower is even allowed on the board as he never,ever, says anything different.
Alistair Darling has said today, that he will not be putting pressure on the BOE for a rate cut, which was in response to a question from a Liberal Democrat, who thought that rates should be slashed.
Clearly banks need all the savers cash that they can lay their hands on because of the credit crunch, and so it would be nice to think that any cut in the base rate would not be passed on to savers. 'God', I sware that I just saw a pig fly past the window outside, as I type this.
Greedy banks as usual want all the cake, and pay rubbish interest rates.
In the Thatcher era, (and no one wants that again) interest rates reached 16.5% for a short period, and returns of 10% on saving accounts were common in the 1980's.
All savers want is a decent return, to enable them to save for a deposit on a house etc, now that easy credit is no longer availiable. This is a good thing, as we don't ever want to see anothe r credit crunch' if we survive this one.
People should save up for things like was the norm in the 50's and 60's decades and not expect easy credit, that then comes back and bites us all in the ass.


Luniversal
06 Oct 2008, 9:25am
LOL at how we keep being told how "attractive" and "generous" savings rates have become, with lenders scrambling to woo the thrifty.

Yeah, right.

Do the maths. Inflation is officially 5%, more like 10% for some of us. The withholding on bond interest is 20% for basic rate taxpayers. The best rates quoted here are just over 7% gross. The status of some of these banks (Kaupthing Edge, anybody?) is not exactly triple-A any more.

Generous, schmenerous. A one-year lock-in now virtually guarantees capital loss in real terms. It was better earlier in the decade when inflation was almost non-existent.

Banks are still playing savers for fools. Index-linked with the unlimited faith and credit of HM Government seems the only sure thing.

I wish TMF would start thinking in after-tax purchasing power terms on their readers' behalf, and stop hailing the best of a bad lot as if they were panaceas.

Come on Scrooges Brown and Darling, do what other Countries are capable of doing and guarantee 100% of savers money.

And who backs the AA? Is it Bank of Ireland?

Money & Jobs (Sunday Telegraph)
Quote : Also bear in mind that the £50,000 limit is per licence. Some banks - such as HBOS, which runs deposit accounts under the AA, Saga, Birmingham Midshires and Intelligent Finance brands, in addition to Halifax and Bank of Scotland - have only one licence between their various arms Unquote

Hi Sov15ski,

Yes, the protection is only for £50,000. So if you've put capital of £50,000 in and then earned interest, the interest wouldn't be covered by the FSCS.

Yes, there is double protection for a joint account. So the FSCS would pay out £100,000 if it was a joint account.

Ed

pdcovers is both offensive and childish. I have worked exceptionally hard for my money and like any sensible person would like to obtain the maximum return for my money. This idiot (as opposed to fool) calls me greedy and says I deserve to lose my money simply because I don't go around savings account touting.... get back to school and learn to spell

Thank you to everyone in this important discussion. I think it would be extremely helpful if someone at Motley Fool could produce a chart that shows which banks/financial institutions are connected. We believe we are spreading our savings around for the sake of safety, but fear that if they ran into difficulty, we could find they are in accounts which belong to the same bank. The cart would, I suppose have to be revised whenever there was a takeover or other change in ownership.

If the best Fixed Bond rates around do not cover the loss of fund value due to inflation, as has been suggested, what then, may I ask, is the alternative?
Surely, something is better than nothing, which is what would be received if that money was not invested anywhere!
It seems to me that the only way to beat inflation, then, is to spend every penny earned as it comes in. Isn't that the reason we are in this mess though?

I agree with those asking TMF to give post-tax rates: a return of, say, 6% means three different returns depending on whether you are a higher rate, standard rate or non tax payer. (though does anyone on a low enough income not to pay tax have any savings?)
I'm about to inherit some capital: I'm just so pleased it wasn't six months ago, when TMF was recommending Kaupthing Edge! I think at present NS&I will get part of it, the part I won't want to touch, as that's then guaranteed to beat inflation and I won't pay tax on the return at all. But where for the rest? I see no easy answer, but an Irish bank looks to be the most likely answer just now.

...Er, that was meant to be a closing bracket followed by a colon , not a sad face!

I also have an IceSave 12-month fixed-rate bond. It seems to be generally accepted that savers will be paid interest they were entitled to up to 'default day', but with no guarantees of further interest payments after that date.
It has also been reported (on the BBC) that term accounts like these will not pay out until they reach their maturity date. So although my capital is guaranteed under the FSCS, it rather looks like my money will be locked up for the next eight months earning 0% interest. Ah, well, it could be worse - some poor folk have their money locked up in term accounts for 2, 3, even 5 years!
It's not the sort of situation which will encourage savers to invest for the long-term in future - exactly the sort of savers that the banks need to be able to plan their own finances.