There is a dearth of information and a lack of understanding in the bank sector itself about the new scheme to replace the blanket guarantee, writes CAROLINE MADDEN

THE GOVERNMENT’S blanket guarantee of Irish bank deposits – introduced in September 2008 to safeguard the banking system – was due to run out on September 29th, 2010. However, late last year it was updated and amended by the new Eligible Liabilities Guarantee (ELG) scheme, with the result that the guarantee has been extended for some deposits, but savers have been left in the dark as to what precisely this means for them.

The Irish Timeshas received a significant number of reader queries on the issue, which is not surprising given that the implications of the ELG scheme have not been effectively communicated to the public by either the Government or the banks.

Not only is there a dearth of information (and what information is available is difficult to find, confusing and in some cases incorrect), but there is a bizarre lack of understanding of the new guarantee landscape within the banking sector itself.

When asked by The Irish Times about the ELG scheme, some banking sector representatives admitted that they had merely glanced briefly at the terms of the scheme, and had a vague belief that the original blanket guarantee had been extended for all deposits – which is not the case.

Even more worryingly, the creators and administrators of the scheme – the Department of Finance and the National Treasury Management Agency (NTMA) – still seem to be figuring out how some aspects of the new scheme will work in practice.

Here we try to shed some light on the situation by examining the various guarantee schemes in place and how they relate to different types of deposits and savings.

Guarantees

In September 2008, Minister for Finance Brian Lenihan announced that the Government would guarantee all savings held by depositors in the seven Irish banks and building societies: AIB; Bank of Ireland; Anglo Irish Bank; Irish Life Permanent; EBS; Irish Nationwide Building Society; and Postbank. This was known as the Government bank guarantee scheme and September 29th, 2010, was set as its expiry date.

Separate to this is the Deposit Guarantee Scheme (DGS), which covers all financial institutions (and their subsidiaries) that are authorised by the Irish Financial Services Regulatory Authority to operate in Ireland, which accounts for the majority of high-street institutions.

Deposits of up to €100,000 per person (per institution) are covered under this scheme, which does not have an end date. A list of institutions covered by the DGS is available on the Financial Regulator’s consumer website (www.itsyourmoney.ie).

On December 9th, 2009, the Government introduced the ELG scheme, which extends the original bank guarantee scheme for a maximum of five years, but only for certain types of deposits with institutions that join the new scheme.

A list of participating financial institutions can be found at www.ntma.ie/ELGScheme/ParticipatingInstitutionCerts.php.

To date, AIB, Bank of Ireland (and its subsidiary ICS Building Society) and Irish Life Permanent have joined the scheme.

According to a spokesman for the NTMA, which is running the scheme, Anglo Irish Bank is due to join this week, while Irish Nationwide and EBS are expected to join within the next week.

All deposits in An Post are already guaranteed by the Government as it is State-owned, but it is believed that Postbank (the joint venture between An Post and BNP Paribas) does not intend to join the ELG scheme.

On-demand deposits

If you have up to €100,000 in an on-demand deposit or current account (ie an account from which you can withdraw your money immediately if you need to), then all of this money is covered by the DGS, assuming that the account is with a participating institution.

However, if you have more than this amount saved in such an account, say €150,000, then the excess – €50,000 – will only be guaranteed by the Government until September 29th, 2010, as the new ELG scheme does not extend the guarantee for on-demand deposits.

It is possible that the Minister for Finance could decide to change this some time between now and the end of September, but this is unlikely unless the banking sector destabilises.

One bank representative pointed out that very few savers would keep such large amounts on deposit anyway as they could earn higher levels of interest by locking it into a term account.

But any individual who is in this position should consider splitting their savings between a number of institutions so that the amount in each account is below the DGS cut-off point of €100,000, and therefore fully guaranteed.

Fixed-term deposits

The main effect of the new ELG scheme for savers is that it extends the guarantee for some fixed-term deposits, ie money that you agree to lock away for a fixed amount of time, for example six months or three years.

However, savers must tread carefully if they are to qualify for this extended guarantee. Firstly, your term deposit account must be with an institution which is participating in the ELG scheme. Secondly, the deposit must be placed with the institution after it has joined the scheme but before September 29th, 2010.

Therefore savers must take care to find out the date on which their particular institution joined the scheme, as this varies. For example, AIB joined on January 21st whereas Bank of Ireland was admitted on January 11th.

If you succeed in ticking these boxes, then your fixed-term deposit (in excess of the €100,000 covered by the DGS) will be fully guaranteed under the ELG scheme for a maximum of five years from the date on which you placed the deposit with the bank.

The guarantee will last until the deposit matures or September 29th, 2015, whichever is earlier.

However, you may not meet these conditions. If, for example, you placed a one-year deposit with AIB on January 1st, 2010, it will not be covered by the ELG scheme after September 29th, 2010, as AIB had not joined the scheme when you opened the account.

But, again, this is really only an issue if the amount deposited exceeds €100,000, as anything up to this level is covered by the DGS.

Notice accounts

The question of how notice accounts (where the account holder must give a specified number of days’ notice before withdrawing their money) are to be treated under the new scheme was met with a great deal of headscratching when put to bank spokespeople and indeed the NTMA, even though it is running the scheme.

Clarification has yet to be provided as to whether the guarantee has been extended for this class of personal bank account.

At the time of writing the NTMA was in the process of trying to figure this out with the Department of Finance.

If those in charge do not know how the ELG scheme is to be applied, then one wonders how individual savers are expected to get to grips with the new savings landscape.