Foreign banks are just as safe!

John Fitzsimons explains why there's nothing to worry about by going with a foreign bank.

The idea of dealing with a non-British bank has taken an absolute battering in the last 18 months or so.

Before the crunch came along, investing in Icelandic banks seemed a completely natural thing to do - there was nothing to worry about. And then Landsbanki went down, and British savers (and that includes local councils and building societies) have been struggling ever since to get their money back.

Thankfully, that battle might finally be coming to an end.

The clock is ticking

Next week, the Financial Services Compensation Scheme will be submitting its final claim on behalf of British savers who saved money with Icesave. The cut off date will be 30 October.

The Financial Services Compensation Scheme has already written to each Brit who had an account with Icesave, though around 1,600 are yet to file a claim. If they don't do so, they will be ineligible for compensation.

The British Government has already guaranteed that no British saver will lose any money, and reports have suggested the Icelandic Government has come to an arrangement with the British Government over the money, so the 400,000 odd savers who had banked with Icesave will hopefully see their money again soon.

However, Iceland is not the only country that has presented an attractive option to British savers in recent times. So, are other foreign banks just as risky?

Is it safe to go with a Dutch bank?

Here at lovemoney.com, we often write about ING Direct, a Dutch bank. And we always get questions from readers about just how secure it is to put your money with them.

Indeed, just last week, one reader said: "I would be very wary about pushing ING Direct, or indeed any bank who are not covered by the UK Compensation Scheme."

That's a completely understandable apprehension, after everything we've seen since the credit crunch first hit. And ING has not been without its share of controversy. It was given a €10 billion bailout by the Dutch Government last October, while the Dutch authorities have also bought up around 80% of its portfolio of mortgage backed securities.

However, the news that it plans to sell off its insurance division, in order to repay that bailout ahead of schedule, should boost confidence in the bank. There are also safety nets in place which should make you feel a little happier about putting your money into a Dutch bank.

ING Direct is covered by the Dutch compensation scheme, which covers savings up to €100,000 - more than £92,000 at current exchange rates.

The size of the scheme has been substantially increased this year - back at the start of 2009, it only covered €38,000. The only niggle is that, should ING go bust, you would have to apply directly to the Dutch scheme in order to get your money back.

Personally, I would feel pretty comfortably putting my money in ING, or any Dutch bank for that matter.

What about the rest of the world?

If you want to establish how safe your money is with a particular bank, the best place to start is the FSA website, which details the various banks regulated by the FSA. The Financial Services Compensation Scheme only covers banks regulated by the FSA, so if your bank is not on the list, your money is not covered by the FSCS.

So even if you bank with someone like Investec (South African) or ICICI (Indian), you will still enjoy protection from the Financial Services Compensation Scheme.

From that point on, your money only becomes as secure as the deposit guarantee scheme operating in the country your bank hails from.

So if you bank with the Bank of Ireland (and that includes Post Office savings accounts) or Anglo Irish, then you should feel pretty secure, as deposits in both institutions (and their subsidiaries) are 100% guaranteed by the Irish Government.

It all comes down to the individual scheme offered by that country, so before you open an account, make sure you have done your homework.

The safest option

If all of this economic uncertainty has put you off the idea of banks altogether, and you are desperate for complete security for your money, above all other factors, then your best bet is National Savings & Investments (NS&I).

Because NS&I is backed by HM Treasury, it is about as secure a place for your money as you are likely to find. And that security obviously means a lot to people, as NS&I boasts almost 27 million customers!

If the crunch has made you turn your back on the banking sector (at least for now), then this is definitely the place your money should go. However, personally I won't be giving up on foreign banks for saving accounts. I'll just be paying extra attention to the deposit guarantee schemes which apply to my bank!

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