# Deposit Safety



## Bigmc (29 Aug 2010)

Hi all,

I have read several threads on this site but am still confussed on the safety of my cash on deposit. I have several deposits with Irish Nationwide for 3 months, 6 months, 9 months & 12 month terms. The total of all these accounts would be well in excess of €100,000. I understood the goverment gauranteee covered 100% of this money but if this is so why are so many people on this site sayin to spread your deposits out over a number of banks to make sure all your money is covered by the gaurantee? 

     thanks for any light you can shine on this


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## Lightning (29 Aug 2010)

Yes, if the deposits are personal deposits and not corporate deposits they are fully protected for the full term. 

Why do people say spread your deposits? Well, there are major uncertainties regarding the future of several banks including INBS. Also, some people have questioned the states financial capabilities to pay back all depositors in these institutions should a wind down decision be made. 

With great term deposit rates elsewhere, it is not hard to spread your deposits.


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## Igcuimhne81 (30 Aug 2010)

I've been asking the same question as the origianl poster.

Basically I see it like this - the state has gauranteed all deposits held in Irish banks (or those banks who have opted to avail of this guarantee) up till the end of September. Thereafter, the banks are on their own, so two things can happen:- 

1. In the course of the two year gaurantee, the bank has been able to replenish its balance sheet and will be able to function independently of the state as a private business.
2. In the course of the two year guarantee, the bank has not been able to replenish its balance sheet and goes bust. In which case the state only guarantees the first €100,000 of deposits for each account.

Alternatively, the government extends the bank gaurantee to an indefinite period.

In this case, two things can happen:- 

1. The cost of borrowing to keep these banks afloat cripples Irelands ability to borrow, in which case the state runs out of money, and a structural collapse of the economy occurs (i.e. there is no cash in the ATM or in your paypacket)

2. The government, in a desperate bid to prevent option 1., slashes government spending, refuses to pay public sector workers for a month, leading to industrial unrest, civil strife, and an overall structural collapse in the economy (i.e. there is no cash in the ATM).

In either case, the state guarantee is worthless - if there is no money, there is no money. 

I would consider putting your money off shore. This has tax implications, but at least your money would be safe.


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## JoeB (30 Aug 2010)

Igcuimhne81 said:


> I would consider putting your money off shore. This has tax implications, but at least your money would be safe.



What country are you thinking of? Why do you consider that country safer? I agree though that if there's no money, then there's no money...

Things can happen in those other countries,.. including perhaps laws being passed which mean that deposits held by foreigners are claimed / confiscated by the foreign state, or taxed heavily.


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## Lightning (30 Aug 2010)

Igcuimhne81 said:


> Basically I see it like this - the state has gauranteed all deposits held in Irish banks (or those banks who have opted to avail of this guarantee) up till the end of September.


 
Personal deposits are fully protected until December 31st 2010. 

Corporate deposits are only protected until September 29th 2010.


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## milic (30 Aug 2010)

Hi Igcuimhne81,

You make make some very interesting points.

But if everyone followed your advice and moved their savings offshore, would that not lead to economic collapse also. Of course, I am not an expert in this field and I may be missing something.


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## Igcuimhne81 (30 Aug 2010)

milic said:


> Hi Igcuimhne81,
> 
> You make make some very interesting points.
> 
> But if everyone followed your advice and moved their savings offshore, would that not lead to economic collapse also. Of course, I am not an expert in this field and I may be missing something.


 
Hi milic

Im no expert either, but after whats happened in the last two years I am quitely confident I have as much a chance of calling it right (or wrong) as any so-called 'expert' has.


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## rob67 (30 Aug 2010)

*senior bond holders versus depositors*

This morning, 30/8/10 on to-day with Pat Kenny,  Willie O’Dea, discussing bank bailouts, said, “there is a fundamental difference between American law and Irish and UK law . Under Irish and UK law senior debt, senior bond holders are on the same level and have to be treated similarly to deposit holders. Now nobody wants deposit holders to lose money but if, as I understand  the law here and in the UK to which the bonds have been issued it would mean that if you were to penalise the senior bond holders you’d also have to penalise the depositors”


Is this true? I always thought deposits were safer than bonds.


Rob


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## bonniecat (31 Aug 2010)

*PO bonds and certificates*

Are Post Office bonds and certs safe or is there a danger that a sovereign default will encompass all bonds such as those held through the post office? thanks as always for sound advice.


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## JoeB (31 Aug 2010)

rob67 said:


> This morning, 30/8/10 on to-day with Pat Kenny,  Willie O’Dea, discussing bank bailouts, said, “there is a fundamental difference between American law and Irish and UK law . Under Irish and UK law senior debt, senior bond holders are on the same level and have to be treated similarly to deposit holders. Now nobody wants deposit holders to lose money but if, as I understand  the law here and in the UK to which the bonds have been issued it would mean that if you were to penalise the senior bond holders you’d also have to penalise the depositors”



So does O'Dea advocate changing the law so that in future senior bond holders (i.e investors) can be told to go and jump, rather than being protected as there are today?

If not, then what's his point?


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## Towger (31 Aug 2010)

Igcuimhne81 said:


> In which case the state only guarantees the first €100,000 of deposits for each account.


 
I believe the state guarantees 100K per *person*. So you need to spread the money around foreign banks as well, up to their governments limit. They are also covered the Irish 100k limit (if operating here), but if the Irish state goes bust, their cover drops back to their home countries limit.


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## Lightning (31 Aug 2010)

bonniecat said:


> Are Post Office bonds and certs safe or is there a danger that a sovereign default will encompass all bonds such as those held through the post office? thanks as always for sound advice.



State Savings are operated by the NTMA. The NTMA includes them as part of their national debt funding figures. 

Nobody can say for certain what would happen to these NTMA deposits if Ireland defaults but they would hardly been seen as the safest if Ireland defaults.


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## Lightning (31 Aug 2010)

milic said:


> But if everyone followed your advice and moved their savings offshore, would that not lead to economic collapse also. Of course, I am not an expert in this field and I may be missing something.



Well, if a lot of people, pulls their deposits offshore or out of Irish banks it would have very serious implementations for Irish domestic banks. 

This has not happened in a major way yet, but Anglo lost 5 billion in deposits in the first half of 2010 and AIB lost 4 billion in corporate deposits in the first half of 2010. Conversely, NTMA State Savings deposits increased in the first half of 2010.


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## HighFlier (2 Sep 2010)

Hypothetical question.

You have 500k in deposit in an Irish bank.

You also have 500k in loans/mortgages from the same bank.

Bank deposit scheme expires so your cover is back to 100k.

Bank then goes belly up.

Is the nett position between you and the bank then zero or could your loan be sold to a third party and you lose 400k of your deposit?


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## Lightning (2 Sep 2010)

Banks can legally net depsosits and loans. 

There was an article in the Sunday Business Post recently with examples of banks that have taken mortgage arrears from deposit accounts.


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## HighFlier (3 Sep 2010)

Yes I know the bank can do it if the customer defaults I was just wondering if it works the other way around if the bank fails.


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## Lightning (3 Sep 2010)

I would think they can only take arrears from a deposit account, not future liabilities.


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## Kev (3 Sep 2010)

HighFlier said:


> Hypothetical question.
> 
> You have 500k in deposit in an Irish bank.
> 
> ...



Is 100k the limt for the EU member, which I assum would be Ireland as well?


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## skrooge (4 Sep 2010)

Kev said:


> Is 100k the limt for the EU member, which I assum would be Ireland as well?


 
yes by the end of the year it will be 100K across the EU
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/918&format=HTML&aged=0&language=EN&guiLanguage=en


Just to be clear the 100K relates to the amount covered per person per institution.  So if you've 500K spread evenly across 5 irish banks you are covered

http://www.finance.gov.ie/Viewtxt.asp?DocID=5466


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