Post Office’s Ireland does not have UK protection
The Post Office has written to 500,000 account holders telling them their money is no longer covered by the UK savings protection scheme. Instead, they will have to put their trust in the Irish version.
Two Dublin-based banks – Anglo Irish and Bank of Ireland – have attracted hundreds of thousands of UK depositors in recent years.
At various times, Anglo Irish has offered best-buy fixed-rate bonds. And Bank of Ireland, through its joint venture with the Post Office, has hundreds of thousands of UK account holders, with more than £6bn in cash Isas, bonds and easy-access accounts.
The systems to safeguard these deposits are complex and have changed in recent months. Protection for savers with those two banks now depends solely on the strength of the Irish economy, which is being questioned more than ever before.
In the wake of Britain’s first bank bailout last September, the Dublin government went further than the UK in offering guarantees to savers.
In the UK, protection was increased to a maximum of £50,000 per person per licensed bank or building society. Ireland eventually promised to protect deposits without limit up to 30 September 2010.
This protection extended to UK customers saving with Irish banks. The Post Office and other Irish banks enjoyed a flow of fresh money from British savers, partly because of anxiety about the UK’s troubled homegrown banks such as Halifax and Royal Bank of Scotland.
But since September the Irish economy and its banking system have deteriorated rapidly. Anglo Irish has been nationalised and the other two banks, Bank of Ireland and Allied Irish, are being supported with government cash. Last week the Irish economy was forecast to shrink faster than that of any other country in the wider EU region – with the exception of Latvia.
UK savers with money in Post Office accounts received letters alerting them to the fact that their cash was no longer protected by the Financial Services Compensation Scheme.
Technically, UK depositors with Post Office accounts or accounts with Anglo Irish will get no help from UK authorities. They must rely wholly on the Irish depositor scheme and the assurances of Dublin that it can meet its banks’ liabilities.
The same applies to any bank operating from countries within the European Economic Area if the local depositor protection scheme exceeds £50,000 protection limit.
One exception is Allied Irish Bank, set up as a UK subsidiary and so authorised and protected here.
The problem for savers locked into fixed-rate deals with the Post Office or Anglo Irish is especially acute. They must weigh up any risk of losing their money against the higher returns they may enjoy and which they would lose if they pulled out their money and put it into a UK bank. But what would happen to small savers if the Irish government failed to keep its banks afloat?
The scary answer is that nobody knows.
The FSCS and the Financial Services Authority say that legally they can take no responsibility in cases where banks are not part of the UK scheme. Commentators say it is possible – though by no means certain – that the European Central Bank would help because Ireland is in the eurozone.
But that would not necessarily mean UK deposits were secure. Equally, the UK Government might decide to step in and assist UK depositors, as it did partially in the case of Icelandic banks, but there is no guarantee of that.
