Just when you thought the worst of it might be over, the banking crisis plumbed even greater depths this week – with UK savers' money put at risk for the first time since the crunch started.
Although the Government eventually came to their rescue, customers with money in Icesave, Heritable and Kaupthing Edge were denied access to their savings, and some will have to wait months before they can get their hands on it again. (To get up-to-date information on the situation, visit the Financial Services Compensation Scheme's website at www.fscs.org.uk.)
A few months ago, the events of this week would have seemed improbable. So is your money safe anywhere but under the mattress these days? Here are five of the best places to keep your money – and have peace of mind.
Of the UK-owned banks, the only one so far to survive the credit crunch relatively unscathed is HSBC. While most banking shares are down at least two-thirds since last August, investors in HSBC have actually made money over that period, when you take into account the dividends.
Better still, some of its savings rates are extremely competitive. Its cash ISA, paying 6.25 per cent, is one of the top five on the market – although you will need an HSBC current account to qualify. Meanwhile, its online saver is not too bad – paying 5.25 per cent. Beware, however, that you will lose more than half of this interest in any month where you make a withdrawal.
ABBEY / ALLIANCE & LEICESTER / BRADFORD & BINGLEY
Abbey, which is owned by the Spanish banking giant Banco Santander, has also established itself as one of the safe havens for investors over the past few months – and its move to buy up Alliance & Leicester, and Bradford & Bingley's savings business, showed its financial strength. If you bank with any of these three institutions, you should be able to sleep easy, knowing that your money is being looked after by one of the largest banks in Europe.
Its rates are good, too. Bradford & Bingley is offering an instant-access account paying an impressive 6.51 per cent. And Alliance & Leicester is offering 6.6 per cent, although the rate reduces if you make a withdrawal. One thing you need to watch out for is that many of Abbey, B&B's and A&L's accounts come with first-year bonuses, after which the rates drop back down. By then, however, there's a good chance that the worst of the banking crisis will be over, allowing you to move your money elsewhere if you wish.
Although Abbey, A&L and B&B are owned by a Spanish bank, they have UK banking licences, so are covered by the UK FSCS. Abbey and A&L have separate licences, so you could have £50,000 in each of these and still have 100 per cent protection. But B&B and Abbey operate under the same licence. Still, the chances of this behemoth going to the wall are very small indeed.
NORTHERN ROCK / NATIONAL SAVINGS
Northern Rock and National Savings & Investments are both owned by the British Government, and are the only places that have the state's full and official backing. Having said that, they no longer offer the competitive savings rates they once did.
When the Government nationalised Northern Rock, it promised not to let it build up more than a 1.5 per cent share in the savings market. At the end of last month, it came close to that limit, so lowered its rates to stop attracting so much money.
With inflation still high, getting a good return on your savings is more important now than at any time in the past 10 years. If you stick with the Rock or NS&I, your savings probably won't keep pace with inflation once tax has been taken into account.
If you feel like you're done with working out which banks you can trust, you could take a look at gold, or other precious metals. The only problem is, investing in metals is far from risk-free, as they are freely traded on open markets, and their price can fluctuate quite wildly. Still, over the past three years, the price of gold has doubled to around $900 (£520) an ounce, and in these uncertain times, it continues to be a popular home for people's money. The advantage of gold over other options is that, if you want, you can exchange your savings for a physical object. If financial Armageddon ever came about, even the bank notes in your pocket might not be worth much. Gold, however, is a universal currency, which is likely to retain a high value as long as times remain uncertain.
The World Gold Council's website (www.gold.org) has links to a number of gold retailers, where you can buy bars and coins. Many of them also sell silver and other precious metals.
Having said all this, we wouldn't recommend that you convert your savings into gold or any other kind of metal. It's inconceivable that Britain – the world's fifth-largest economy – will go bust. And given that the Government has made it clear that they will protect all individuals' deposits with UK banks, we think you'd be much better trusting your cash to HSBC, Abbey or NS&I.
Irish banks: Tempting the British
The Irish government caused a stir last week when it announced it would be backing deposits in each of the six largest Irish banks. With the British Government unwilling to match such a promise, many UK savers began to switch their savings to the Irish banks – most of which have branches and operations in the UK.
Many commentators were quick to point out that the Irish government could never keep such a promise. However, the more money that pours into its banks, the less likely it'll ever have to.
With tempting offers available, it's hard to discourage UK savers from taking a look. Anglo-Irish bank, for example, is paying more than 7 per cent on its one-year bonds. However, the more money that is shifted off UK shores, the harder it gets for our own banks.
If you've got your money with any of the big UK high street banks, you should comfort yourself that they're simply too big to fail, and sit tight.
Three to avoid: Savings pitfalls
Too much in one place
So far, the Government has ensured that no depositor has lost any of their savings. However, the Financial Services Compensation Scheme still only officially covers you up to the first £50,000 of savings with each bank or building society. There is something to be said for ensuring you don't have any more than £50,000 with one institution (except the largest, or Government-owned ones). And find out who owns your bank. Some groups own multiple banks and only hold one licence, so only the first £50,000 of your money across all of those banks will be covered.
If you need access at short notice, avoid the smaller banks and building societies. During the summer, Nationwide came to the rescue of the Cheshire & Derbyshire building societies, and this week, Chelsea Building Society saw its credit rating downgraded. Although your money should be safe, even if your building society collapses, you'll probably have to reclaim it from the FSCS, and this could take several weeks.
All overseas banks operating in the UK are members of a depositors' protection scheme. However, as events this week proved, these are often only as strong as the country's economy. So while Icesave depositors should have been protected by the Icelandic depositors' protection scheme, it soon became clear that the Icelandic government may not have enough money to keep its protection scheme solvent. The UK government eventually guaranteed that all retail Icesave customers would get their money back – and would probably do so again if the events were repeated elsewhere – but, again, this could take weeks. If you think you may not be able to wait that long, you should keep your money somewhere safer.