Recent events in Cyprus might have put savers off saving altogether. The original bailout plan was clearly unfair and the European Commission, IMF and Cypriot politicians have at last seen sense. Savers with less than €100,000 will be protected from the one-off tax to help rescue the economy.
In the UK, there is no sign that our savers are heading for withdrawal limits and taxes on larger savings balances. So on that basis, we say it is ill advised to abandon savings accounts altogether. But the Cyprus crisis raises serious questions that need serious consideration.
The UK subsidiaries of Cypriot banks have been quick to reassure their savers that their money is safe and the levy will not apply. Bank of Cyprus operates under UK rules and is a ring-fenced business authorised and regulated by the FCA (and a member of the UK Financial Services Compensation Scheme protecting up to £85,000 per person). Laiki Bank UK savings customers will escape the Cyprus levy too as they are transferring to Bank of Cyprus UK and therefore all deposits will remain in the UK.
Falling interest rates and rising inflation are another reason to feel negative about savings. But as our ISA article shows, there are still ways to keep the value of savings constant - just. And remember too, whilst bond or equity funds may offer better returns right now, their value can go down as well as up. A sensible approach to rainy day funds and longer term investments is what is needed.
The Cyprus issue and savers’ real returns make it as important as ever to shop around for the best deal, but not to put all your eggs in one basket should anything go wrong - no matter how small the risk.
Compensation schemes add a level of security but investors still need to think about how good those schemes are. Spreading money around between banks and bank brands makes sense.
For UK savers, we have a useful list of which brands come under which compensation schemes and licences. Or for savers with larger sums, our Concierge Service may be of use. For a small fee, we aim to maximise returns and maximise compensation protection at the same time. Details and testimonials from savers using the service can be found too.