What Should I Do With My Money?
Iain Dale puts into words what many are thinking. If the banks go under, where's the best place for our money?
18 Dec 2011, 17:46
Cashpoint machine
Perhaps even by writing this blospost I will be accused of scaremongering, but I don't think I am alone in wondering about the consequences of a banking collapse.
Back in 2005, when I was a parliamentary candidate, I remember walking down Cromer High Street on a Friday afternoon with 16 pence in my pocket. My credit cards were maxed out. My overdraft was at its limit and I had used up all my savings. In short, I wasn't far way from hitting rock bottom. How on earth had I got myself into this position? One thing I did know, I would never allow it to happen again. After the election, I sold our cottage in Norfolk and used the profit (thank God there was a profit!) to pay off all my debts. I quickly got myself back on my feet and between then and now have built up some savings. Not a huge amount, but enough to make use of if a rainy day ever approached.
The banking crisis of 2008 shattered many people's confidence in the whole financial system. Regulation had failed, and as far as I can see, little has changed to improve it. I don't want more regulation, I want better regulation.
The euro crisis has brought back bitter memories of 2008. It seems to me that the sovereign debt crisis in the eurozone could indeed herald a second banking crisis, which in Europe could be far more badly hit than three years ago. Why? Because of a domino effect. It is argued that British banks are slightly insulated by this, but I wonder how many people really believe this. We may be located a few more dominos down the track than France or Germany, but does anyone seriously doubt our banks would esape unscathed?
Alistair Darling promised that anyone with savings of up to £85,000 would have their savings protected. But how firm would that guarantee be in the future? Can we rely on it? Of course, that only refers to savings in a deposit account - not a business account. If a major bank went under, businesses would be decimated.
I bank with Lloyds TSB. I don't have any accounts with European banks. If I had, I would now be closing them and moving my money. I have no idea how many people are thinking in the same way, but if they're not, ought they to be? It's the great unspoken subject at the moment. It's like the Fawlty Towers sketch - Don't mention the war. I did, but I think I got away with it. We don't talk about our money in polite society. It's not the way we British do things. Well I do want to talk about it, because like most people, I suspect, I am beginning to get a little nervous.
There is a part of me that wonders if my money wouldn't be safer under my mattress. Pauline Neville-Jones, when she was on the Murnaghan programme on Sky News this morning, reckons that it is entirely possible that if there was a collapse of several banks, the rest would just shup up shop - shut their doors and prevent people from withdrawing money. If you read Alistair Darling's book, Back From the Brink, you'll know how close we came to that point in 2008. The cashpoints were hours away from having the plug pulled. The government is said to be making contingency plans for civil unrest in the event of a banking collapse.
So I ask again. What should people do, who have a modest amount of savings? Trust the government guarantee? Or something else? Buy gold? Buy something else? Withdraw it and stick it in a safe?
Perhaps Martin Lewis, the Money Saving Expert, should dispense some wise advice on this subject. Because I am buggered if I know what to do.
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Iain Dale
Iain Dale is publisher of Total Politics, MD of Biteback Publishing & presenter of LBC's evening show.
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Comments (7)
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NS&I Direct Saver give 1.75% and since it's The Treasury they say 100% safe up to 2 million
Safer than the banks and apart from sticking it in a safe or buying assets may be the best
Gold was a good buy a few years ago but unless you think Stirling will collapse probably not the best now
18/12/2011 20:17Hattori Hanzo
How exactly can Stirling collapse? Would the ground open up and swallow it? Fall into the sea? Atomic bomb?
18/12/2011 21:55Sterling will collapse - i.e. a massive devaluation - if the Government is forced to print money hand-over-fist in order to prop up British banks. Essentially it's a redistributive device: by having, in effect, a 'rights issue' the government increases the amount of denominated pound-sterling in the economy but immediately decreases the value of each individual pound, which instantly hits anyone with savings because their buying power drops equivalently.
We've already seen it happen. Before the crisis each £ was substantially worth north of $2. Now it's worth around $1.50 or so. That's a devaluation of over 25%.
Commodities like are a apparently good safe haven if you listen to people 'in the know' - but other people 'in the know' (Alastair Darling, I'm looking at you now) were telling us that everything was roses in the garden even as banks were clinging on to the precipice walls by their fingernails.
About the only economy that looks like a reasonably safe bet is Australia. If I had the money to be doing such things, I'd be considering investing in Aussie mining companies.
19/12/2011 09:32Buying gold is all very well in theory, but in the event of a total meltdown (no pun intended, civil unrest, banks refusing to allow people to withdraw their money etc who would you sell it to?
19/12/2011 10:17Dave, currency collapse is usually the result of default, devaluation or inflation. I will dismiss your suggestions as unlikely
Ask an Argentinian in 2002 what he would prefer to hold, pesos or gold?
Gold is really best as a store of wealth or a hedge against inflation
As regards the original question I think what most of us are looking for is safety, we can leave the profit making for a few years so anything speculative is off the menu for now
If you know your onions you can buy assets but for the ordinary chap that just wants a safe haven for his cash, NS&I fits the bill for me
19/12/2011 11:53Hattori Hanzo
It was tongue-in-cheek. You spelt 'sterling' as 'stirling' which is actually the name of a city in Scotland. :p
19/12/2011 12:48Dave, apologies, too early for my subtlety sensors. I noticed my mis-spelling but decided to gloss over it and try not to mention it in my reply :)
A quick word about the Financial Services Compensation Scheme. As I understand it, it is not treasury backed, rather the banks are required to pool resources to help out if one of their number gets into bother and amounts to about 4 billion. But a bit like re-insurance is of little use if too many of them go under as they are bailing out each other
Any wiser heads want to comment?
19/12/2011 14:48