# €800,000 on deposit AIB



## venividivici (10 Oct 2008)

We have €800,000 locked in until Feb in AIB.  Proceeds from sale of land.  Should we take it out early, suffer penalties and spread the risk over several banks - Northern Rock, Rabo etc?  We're not convinced that the Irish government guarantee is actually workable if push comes to shove.  Or, does buying American shares sound like a good idea to anyone?


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## CGorman (10 Oct 2008)

Well straight off your first worry was the safety of your money rather than any growth in it. So it is perhaps not a very prudent idea to consider investing in "american equities" as there exists hugh volitility and risk (e.g. possible recession). Your deposit is as safe where it is as in any other Irish bank account and is subject to the same guarantees as other accounts. You could as you suggest spead your money between two or three banks. This may be a good idea, but bear in mind should the highly unlikely event happen that AIB requires use of the guarantee it could quickly lead to several other banks calling it in (as panic ensues). Also you don't state what the penalty is for moving funds and what term you are locked into to not pay penalty.


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## Joody1 (10 Oct 2008)

CGorman said:


> but bear in mind should the highly unlikely event happen that AIB requires use of the guarantee it could quickly lead to several other banks calling it in (as panic ensues).



Does this mean that the government can go back on what was made law a couple of weeks ago regarding peoples deposit.

joody1


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## CGorman (10 Oct 2008)

no, my point is that if say AIB where to fail and require the intervention of the government, it is possible (in my view) that there would be a run on other Irish banks by depositors who don't want to wait around for the governement to refund their deposits; this could lead to more collapses. Again, this is an unlikely scenario; just an afterthought really


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## Joody1 (10 Oct 2008)

I agree with that due to the government taking the initiative and guaranteeing all depositors money that was a wise move by them.

Joody


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## marksa (10 Oct 2008)

depending on when you put the money in, the cost of funds for the bank to use in its break cost calculation were almost certainly below the current 4month cash rate of approx 5.404%
http://www.euribor.org/html/download/euribor_2008B.xls

If, for example, you put it on 6month fixed back on 11th August at 5%, then AIB cost of funds would have been 5.15% (6month euribor on 11th August). Their margin therefore being 15bps

It will depend on your terms of course - AIB could charge you the equivalent of the margin due for the remainder of the term 15bps on 800k for 4 months = eur400. 

There is then the economic cost of replacing the 5.15% money with 5.404% money which = 800,000*0.00254*4/12= eur677

total charge could then be 400+677=eur1077

You could play around with the calculation depending on your rate and the date when you put the deposit on.


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