After the collapse of three Iceland-owned banks operating in the UK, savers are rightly nervous. However, these big-name banks should be secure.
The financial news is filled with doom and gloom at present, so I begin with a gentle, poetic start to today’s story. When Juliet tells Romeo that she loves him, not his family nor its name (‘Montague’), she declares:
“What's in a name? That which we call a rose
By any other name would smell as sweet.”
(from Romeo and Juliet by William Shakespeare)
What’s in a name?
Although these teenage star-cross’d lovers were all too willing to overlook their family names and rivalries, the world of business is built on names. Big names inspire trust, and big brands (such as Coca-Cola) can be worth billions in their own right. What’s more, with the banking world rocked to its foundations, big names are a huge draw right now.
Northern Rock and Bradford & Bingley have been nationalised, and Icelandic banks Icesave, Heritable Bank and Kaupthing collapsed earlier this week. Hence, British savers are desperate for reassurance that their deposits are safe. No longer are they interested in chasing the very highest interest rates -- they want to know that their savings are 100% secure.
Bring on the big boys!
I’m now going to run through a list of banks (and one building society) that I believe -- barring total financial Armageddon -- are entirely safe and secure for savers. Here we go (I haven’t included UK subsidiaries of US banks, as I’m not convinced that the Americans are out of the woods yet):
1. UK government-backed banks
Two banks enjoy the ‘full faith and credit’ of the British government: failed building-society-turned-bank Northern Rock and the government’s own piggybank, National Savings & Investments (NS&I), which was founded in 1861. However, the market share of these institutions is restricted, and both have very little headroom remaining. Hence, both firms have been pulling accounts and reducing interest rates in order to put off savers. Nevertheless, they still have a magnetic draw for risk-averse savers.
2. Irish government-backed banks
In response to tumbling bank share prices, the Irish government guaranteed all deposits and debts at six major banks until 28 September 2010, as I revealed in The Government Must Guarantee Savings. Thus, these Irish deposit-takers (and their UK outfits) can be regarded as 100% secure:
- Allied Irish Bank
- Bank of Ireland
- Anglo Irish Bank (which offers three cracking high-interest accounts)
- Irish Life and Permanent
- Irish Nationwide BS
- Educational BS
Today, Ireland’s Minister for Finance announced that the Irish operations of these banks would be eligible to join the scheme: First Active, Halifax Bank of Scotland (Ireland), IIB Bank, Postbank and Ulster Bank. However, this guarantee will not extend to their UK operations, so there’s no Irish guarantee for HBOS.
3. Global giant HSBC
Ranked by market capitalisation, HSBC is the world’s third-largest bank. In fact, it is worth close to twice as much as its five UK-listed rivals combined. In my view, HSBC is surely the most secure Western bank in the world. As well as operating under the HSBC brand in the UK, it also owns First Direct.
Thanks to high market shares in savings-heavy countries in Asia, the Middle East and the Far East, HSBC has serious financial firepower. It showed its strength yesterday when it said that it had no need of the government’s £50 billion bank bailout. You’ll find several good-value HSBC accounts in our savings centre.
4. Dutch bank ING
ING is the biggest bank in the Netherlands and a fairly big player on the global scene. Yesterday, it came to the rescue of savers in Kaupthing Edge and Heritable Banks as we reported here. Its ING Direct (UK) Savings Account pays a handsome 6.50% AER (including a 1.66% bonus for a year) on £1 to £1 million.
5. Spanish bank Banco Santander
Santander is another bank with global reach -- in fact, it has more branches than any other bank. In the UK, Spain’s largest bank owns Abbey and Cahoot, and is poised to take over Alliance & Leicester. What’s more, this powerful bank bailed out savers when Bradford & Bingley got into trouble last month. Santander is one of the few winners from the credit crunch.
6. Nationwide Building Society
In April 2008, the UK’s 59 building societies had total assets of £332 billion. The largest member, Nationwide BS, accounted for £159 billion of this total, or almost half (48%). Indeed, Nationwide BS is bigger than the next eighteen building societies combined!
Nationwide BS flexed its financial muscles recently by agreeing to take over struggling rivals Cheshire BS and Derbyshire BS. For the record, Nationwide BS is my favourite financial firm on the high street, as it offers good-value products to all of its customers, both new and existing.
So, there you have it: a long list of banks which are as safe as houses. Actually, with the Halifax revealing today that its House Price Index has dived 13.3% since September 2007, cash in these banks is far safer than houses!
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