Are savings safe with Irish banks - and the Post Office

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Are savings safe with Irish banks?

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The issue of savings compensation is mired in complication, more so since the Irish government raised its level of protection to 100% of all deposits until September 2009.

As the level of compensation offered in Ireland is now higher than the UK, the vast majority of Irish banks are covered solely by the Irish system, not the UK's Financial Services Compensation Scheme (FSCS).

Many savers are worried about this. Here Richard Dyson addresses the issue...

There are two Irish banks falling outside the UK's FSCS: the Bank of Ireland (which includes accounts held with Bank of Ireland through the UK Post Office) and Anglo Irish.

Allied Irish Bank does belong to the FSCS as it has a small High Street presence in the UK, and so enjoys the same protection as UK-based, and UK-authorised banks. So this issue does not concern accounts with Allied Irish

Financial Mail has consistently highlighted the problem that Anglo Irish and Bank of Ireland/Post Office customers do not have the same protection as they would at other, UK-authorised banks.

Since last September, these two institutions have been protected by the Irish scheme. The Irish scheme has no nominal limit to its protection.

In other words, the Irish Government has promised to protect all deposits with these banks regardless of the size of the deposits. On the face of it, this protection appears more generous than the FSCS protection here in the UK, where deposits are protected only up to £50,000.

But the problem is that the Irish protection is dependent upon the strength of the Irish economy.

Nobody knows what will happen if the Irish economy deteriorates further and, for instance, Ireland becomes unable to meet its financial obligations to overseas investors.

This is not generally viewed as very likely, but it is possible and is an increasing concern as Ireland's financial position is worsening. The markets which insure lenders against the risk of national governments failing to meet their financial obligations, are now pricing Ireland as posing the greatest risk of all countries in the eurozone.

Authorities in Germany have recently indicated that the German government could intervene to prop up failing eurozone economies, such as Ireland, but this remains speculation. In any case, if Ireland were to default, nobody seems to know what might happen to the Irish Government's pledge to protect UK savers' money.

Financial Mail has repeatedly questioned the UK Treasury, the Financial Services Authority and the FSCS on this subject but they do not appear to have any contingency in place, or at least will not answer questions on the matter.

Royal Mail, the parent company of the Post Office, has refused to answer our questions also. We view it as scandalous that no UK authority here will deal with this issue. The scant facts of the matter are:

• Savers with the Post Office/Bank of Ireland and Anglo Irish have no UK protection whatever, but must rely solely on the Irish scheme. The Irish scheme, like most others, is not funded: it does not have money in hand available to return to depositors.

• The UK Treasury has not yet offered any pledge to step in and cover UK savers if the Irish scheme fails.