Are Post Office Savings Bonds safe?

PERSONAL FINANCE:Your questions answered

Q

As someone who has most of my life savings in an An Post Savings Bond I need to know are these savings at risk if the Irish Government was ever to default or need the IMF?

- Mr JO’S, e-mail

A

We are getting a significantly larger mailbag on the issue of the security of deposits in the event of default. The first thing to say is that, despite recent volatility, there is no reason to expect a default.

In the first place, unlike Greece, we have plenty of liquidity, relatively speaking. The National Treasury Management Agency (NTMA), which manages State debt, has already raised sufficient funds to meet expected requirements through to the end of July next – albeit at increasingly high rates of interest.

There is also the National Pension Reserve Fund which, though envisaged as a pot to help meet the cost of pensions from 2025, could certainly be used in extremis. That effectively gets us through to the end of next year when the world will hopefully look a far less threatening place, economically.

On top of that, the European Central Bank has given itself the authority to buy government bonds in the secondary market, effectively allowing it to intervene if the cost of our debt rises too high.

And then there is theEuropean Financial Stability Facility, the fund established by the euro group to bailout euro zone states short of a default.

An Post Savings Bonds are covered by an absolute State guarantee – in place long before the current crisis broke.

An IMF intervention – if it ever happened – would be tough but there is nothing to suggest that, even then, An Post savings would lose their protection.

Are all bank guarantees the same?

Q

Your reply last week to “finding a safe place for your savings” in has me a bit perplexed. Is the “Eligible Liabilities Guarantee” in part one of the article similar to the “Deposit Protection Scheme” in the second part?

The ELG ends on December 31st whereas the DPS carries on indefinitely! Are they separate?

- Mr MH, e-mail

A

They are. The Deposit Protection Scheme has been in place long before we ever had this banking crisis and it remains in place. Effectively, the first €100,000 of money deposited by you in any one institution is covered in full by this scheme.

For a temporary period – under the separate Eligible Liabilities Guarantee – the Government is guaranteeing sums over €100,000 in those institutions covered by the guarantee. These are: AIB; Anglo Irish Bank; Bank of Ireland; Irish Life Permanent; EBS Building Society; Irish Nationwide Building Society; and ICS Building Society.

This temporary guarantee remains in place only until December 31st of this year, although it will cover term deposits (ie, three-year savings and the like) provided the account is opened before the end of the year.

It is possible that the State will look to extend this second guarantee further but that remains to be seen.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into. Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com