john banks

Was hoping that the new issue of index linked savings certificates would be good...

last year RPI + 1.35%
this year RPI + 0.35%

Darling wants savers' money at cheap rates. I think I might not give it to him this time.

PeteBrant

It's not necessarily a worse deal what this offer roughly translates as is "we fully expect inflation to rise"

Which in turn means that interest rates are going to get lower - So any sort of interest based savings plan isn't going to be great.

john banks

I would quite like a real after-tax return after inflation though!

It is more tempting to go and buy more gold whilst it is cheap?

I've just emptied Icesave after Fitch put them on watch... the Financial Services Compensation scheme now seems to be effectively useless in that it will only pay out £4bn, that would only bail out 114000 investors with £35k in each.

PeteBrant

That's a really tricky one

Now thatGold has broken the £1,000 barrier, there is every likelyhood it will go back there any beyond. But... The States are doing absolutely everything they can to revive the dollar, and if they manage it, then people may well go back to trading in currencies rather than commodities, in which case, Oil and Gold will slump (relatively speaking).

Deep Singh

I bought into the old one (just last week), lucky I got there before they changed the rate. Hopefully it means that they expect the RPI to avge around 4+ though so I'll get a good return on those.

I didn't realise that there was a £4bn cap on the FSA payout, I thought everybody got their £35k. Are you sure about that? How would that work? How would they choose who would get their money back.

As for returns beating inflation, I think you're going to have to be more clever than govt certificates or gold to do that. Two plans

1) Accept a lower than inflation return for now, by staying in cash, ready to pounce on equities when the bear market turns

2) Look at property abroad. I'm not talking about places ramped by Channel4 type progs, but places with real reasons to see growth (Brazil, parts of the middle east)

IMHO!!

PaulC72

Easy one that, start with the politicians and work you way up

Petem95

Gold still potentially has a long was to go, as it's nowhere near it's inflation-adjusted peak seen in other financial crisis.

I almost went into gold a while back when it was just under $600/ounce, but thought I'd missed the boat... still unsure at the current price though to be honest.

Bit of a bugger about the NS&I IL bonds - however for higher rate payers they still look fairly good seeing as RPI is high, and it's somewhere safe for your cash - can't say that about many banks of BS's at the mo can you

john banks

Deep, I understand that the £4bn limit is new as of either yesterday or this tax year, so they've effectively made the compensation scheme useless to me, and I'll have to start moving things around as bad news is revealed about each bank in case there is a run. I've withdrawn from Icesave for this very reason yesterday after Fitch put them on watch (and also a foreign scheme to claim against first, Iceland is considered a little vulnerable too - look at the Krona).

Whilst the UK government would hopefully cover more, and did cover more than what was required by bailing out Northern Rock, it isn't guaranteed.

I have mixed feelings on gold and equities, but 10% in each at present. I have some Brazilian equities, but a token amount - they've underperformed cash this year.

albob

John Banks - you've got me worried now! - I am about to put £3000.00 into an IceSave ISA. What is fitch? and should I avoid icesave.............!!??

alan

john banks

Fitch is a ratings agency. They had the best record out of Moodys or Standard & Poors of rating the toxic material that brought down Bear Stearns.

With Fitch putting Icelandic banks on watch it means it is going to investigate further their credit worthiness.

You are unlikely to lose your money, but personally I would be willing to give up a small difference in the interest rate and select a UK bank.

A saver shouldn't have to consider this sort of thing for a deposit or ISA, but when you consider the foibles of the fractional reserve banking system and the severity of the credit crunch it might be better to do a bit of digging first and see if you are happy with the (small) risks.

If you need a quick decision, National Savings Direct ISA is/wasn't too bad. Northern Rock (!) is another option being backed by the UK government.

I might be accused of being a tin hat wearer, but who expected a run on a British bank last year?

john banks

Why Iceland melts under weight of dancing bears - Times Online is a link I'm just about to read.

john banks

Landsbankinn - Press Releases

GCollier

Do you have a link to a relevant news article? I always understood that whilst individual claims were limited (£35k in cash, £50k in investments) the total number of claims the FSCS would pay out is unlimited.

Thanks,

Gary.

john banks

"The FSCS doesn’t keep a pot of cash sitting ready and waiting. Instead, it has the power to operate a 'compulsory levy' on banks, insurers and others signed up to the scheme, as and when it needs the money. The advantage of this is it can pull cash from more than just the affected sector (i.e. if an insurer went down, while other insurers must contribute first, above a certain level banks would be asked too) so funds should be available.

In theory, this means should the worst happen and a bank goes out of business, the FSCS has the legal power to call in funds from major financial institutions to cover the compensation needed to repay the first £35,000 lost by every saver. However, from 1 April 2008 a review of the FSCS has said the overall capacity will be capped at just over £4 billion every year. Even this is unlikely to be enough to have covered Northern Rock if it collapsed; when asked what would happen if more than this was needed the regulator, the FSA, responded:

"A shock of sufficient magnitude to cause the possibility of the Scheme being exhausted would trigger the crisis management arrangements between HM Treasury, FSA and the Bank of England. Discussions would be held with HM Treasury and the Bank of England, through the mechanism of the Tripartite Standing Committee about the most appropriate response. Any action arising from these discussions would vary according to the circumstances, and so cannot be specified in advance."

In plain English, this means that in the unlikely event of a bank collapsing and requiring more than £4 billion of compensation, there would need to be a specific case by case solution put in place by the Government, FSA and Bank of England; much like happened following the Northern Rock crisis. The best, and only, thing we can assume is £35,000 in each institution is still the safest possible method."

Are your savings safe?: Full guide to protect your cash ...

GCollier

Thanks John.

I guess in practice this means that in the event of a big catastrophe the BoE would just "print" the extra money rather than let a bank go under.

Gary.

john banks

I guess so, but we are still in the situation where we were with Northern Rock where Mervyn King admitted something along the lines that the savers were not illogical to take their money out? Hence I think even savers in deposit accounts should check the underlying bank seems to be solvent.

My money may go back into Icesave when it settles down, just as it may come out of Alliance and Leicester again if they wobble.

albob

thanks for the links John -- will have some reading to do!!