How to manage your savings during a banking crisis
It's all been happening!
In the last few weeks, much has happened with the Irish banks. Anglo Irish is being nationalised. Some banks got downgrades in their credit ratings which means that rating agencies see increased levels of risk associated with these banks - you can read more about these downgrades here http://www.independent.ie/business/irish/downgrades-as-fitch-takes-red-pen-to-irish-lending-institutions-1603882.html. And almost all banks are lowering their savings rates on almost all of their saving products, including ourselves due to the ECB cuts.
We're busier every day
In these very turbulent times, just like the beginning of September last year, at RaboDirect we've seen an immediate increase in calls, new customers and money coming in to us which, we feel, is in part due to our triple A credit rating. Okay, we may not have the best deposit rates in the market, but more and more people seem to be happy making the trade off between higher rates and safety.
Savings Strategies
For sure, there are a limited group of rate chasers out there. These people move their money in and out of different banks and react sharply to any change in interest rates. But my impression is that the majority of savers are looking to spread their money, and so their risk and return, by opening up a number of savings accounts across a few different institutions. For example, in one bank they might get a higher interest rate but the account comes laden with lots of terms and conditions. In another bank, they might accept a lower rate for less of the terms and conditions, but the bank has a higher credit rating and their money is on hand when they need it.
This seems like a good strategy, as long as you are aware of the terms and conditions which come with almost all the high-rate saving products. I'd also recommend checking out the credit rating of the institution that you’re putting your money into and under which jurisdiction and guarantee scheme they fall, so that you have a very balanced view of the bank you're dealing with.
Still lots of Sneaky Stuff!
I would also have hoped that the financial turmoil would have meant that we were to see a greater number of simple and clear savings products on offer by the banks. It amazes me to still see these headline rates out there which look attractive at first, but when you dig deeper into the terms and conditions, your opinion of the product is very likely to change. Indeed, many end up not being the best solution for you and your savings at all.
Here's one example: A rate of 5.85% looks great, but when you see it's only offered until the 31st of March THIS year, you start wondering! Or what about instant access to your money, but when you do access it, you don't get any interest on the whole balance in that month you withdrew it. Sneaky? We think so and they are just a few of the creative ones we’ve seen recently. It's got to get better
On a positive note though, this whole financial crisis should bring back the simple basics to the banking industry. Banking needs to become a normal business with a normal risk appetite, where we have access to simple product offerings along with advertising which means you don’t have to be a legal guru to interpret it. It's good to see that people do appreciate the triple A rating of my institution, Rabobank, which we have retained for over 20 years. With that strong parent, RaboDirect is a very safe haven in these current times. That coupled with a fair rate and honest, simple, and easily accessible products is apparently still very appealing to our growing customer base.
What do you think?
So, what are your thoughts in relation to managing your savings during the current financial crises? Are you happy to accept high interest rates with sneaky terms and conditions? Or do you think that diversifying your savings between a number of banks is a good strategy?
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