Placement of ISA Savings

Hi all

With all the issues surrounding stability of Banks/Building Societies, where is the safest place to get a good rate on a cash ISA?

TIA

Phil

If your total ISA savings are less than 35k, then all banks and building societies are equally safe. I'd go for the best rate you can find for your requirements.

That assumes the Financial Services Compensation Scheme would be adequate in event of meltdown. It's not clear that would be the case for major meltdown.

The reason Northern Rock and NS&I are consider 'safest' is because of the government guarantee.

Toom

"Toom Tabard" wrote

But - would even the govt "be adequate in the event of major meltdown" ??

No, but it's got more money than the FSCS can raise. The question was about the 'safest'.

The FSCS covers defaults by a levy on the other members. For bank retail deposits it can raise £1.8 billion per year from banks. If thet's not enough it can levy all types of members bringing the total to £4.1 billion per year. For major meltdown there would be a problem if the larger, or several major banks, defaulted, because they would be normal source of some of the levy.

Toom

"Toom Tabard" wrote

Do you really think that, if the standard FSCS resources (which you detail above) were insufficient, but the govt could still afford it, that the govt wouldn't inject extra funds into the FSCS?

If you think not, then why not?

Has that yet come into force?

Peter

It has been increased to 50K (per financial institution).

No it hasn't. They are looking at the possibility, but no decision has yet been taken.

Practically you can treat it as 50K now; by the time you've shuffled your money around it will be.

On the same principle that the Chancellor can refuse the Bank of England permission to act as lender of last resort to banks if public money is at risk, and given that the government does not step in willingly in other areas where pensions are lost or with profits annuities devalued, I'm not aware that intervention would be guaranteed. I'd be interested in any information about the existence, or likelihood, of any government guarantee for bank deposits.

Toom

"Toom Tabard" wrote

So why do you think that they'd help Northern Rock in the event of a major meltdown? ...

Northern Rock is still a limited liability company, isn't it? - With the Govt holding shares in it. If it goes under, the shareholder(s) can just walk away with no liability...

"Toom Tabard" wrote

Because of the memorandum of understanding of the circumstances in which the the Bank of England will act as a lender of last resort. The intervention was more designed to restore general stability and faith in the banking system, and, it is claimed, public money is not ultimately at risk.

But it is only the recent major problems involving many banks which has shown-up the possible major inadequacy of the FSCS - it just wasn't an issue before. It is not clear to me that any system, including government compensation, could immediately guarantee savers deposits if there was a serious meltdown involving several major banks.

Toom

Except possibly Icelandic banks that are covered by the Icelandic scheme.

If one of the big Icelandic banks were to go down, it is difficult to see how other Icelandic banks or the Icelandic Government could afford to bail them out. It is not clear what happens if the Icelandic FSCS were to default.

HSBC's assets are somewhere in the region of £1.2tn, RBS and Barclays are about £1tn each, HBOS is about £600bn and Lloyds about £350bn.

The government's entire tax take is in the region of £600bn per year, so it would seem that the Northern Rock bail out, about £25bn of actual cash paid out, is at the limits of what the government could afford.

"Jonathan Bryce" wrote

So the govt can afford to bail out other banks around the size of NR, but the FSCS couldn't. Now answer my question - "Do you really think that, if the govt could afford it, that the govt wouldn't inject extra funds into the FSCS?"