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SURVIVING THE EUROSHOCK: Spread risk, savers warned as currency turmoil spreads

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Confident: Runner Laura Blackwood is happy to save with Dutch bank ING Direct

The tumbling value of the euro is threatening the likely compensation level for more than 1.5 million savers who, often unknowingly, invest with banks covered by European rather than UK deposit protection schemes. This has sparked fresh warnings for savers to spread their deposits.

Continental schemes set the maximum level of protection in euros, even for British depositors.

Banks in this category that have savers in Britain include ING Direct and ethical bank Triodos, which are both covered by Dutch compensation arrangements, and the Bank of Cyprus UK, a member of the Cypriot Deposit Protection Scheme. All have been widely promoted in Britain and have occasionally offered best-buy rates.

There is no suggestion that any of these banks is in any financial difficulty. But in the worst case, a meltdown in the eurozone could leave their UK savers exposed.

Meanwhile, the falling value of the euro has hit the value of deposits that are safeguarded.

Under European rules, bank deposits are protected up to 100,000 euros per person, which is worth £80,400 today. Britain’s Financial Services Compensation Scheme has protected up to £85,000 since December 2010. The limits double for joint accounts.

Prudent savers should aim to keep the value of individual deposit accounts below these limits. David Black, a banking specialist with financial market analyst Defaqto, says: ‘If you have more than £85,000 in savings, it makes sense to split it between different institutions.

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‘Ideally, try to keep it to no more than about £82,000 with any one provider because that way you should also be covered for any unpaid interest.’ But managing these limits with overseas banks is more difficult when exchange rates are fluctuating so wildly.

Six months ago, when the euro was trading at 1.16 to the pound, the 100,000 euros limit meant that sterling deposits worth up to £86,207 were covered. But with wholesale rates of about 1.25 euros to the pound last week, the sterling value of that protection has fallen to £80,000. If rates slip further, say to 1.35 euros, then only £74,074 would be protected.

But there are questions over how well these banks are keeping customers informed.

Last week, for example, the Bank of Cyprus UK was still quoting an exchange rate on its website dating back to June 2011. This stated that its protection under the Cypriot scheme was worth £88,000.

After being challenged by Financial Mail, the bank started quoting a figure of £81,200, based on rates at May 2.

Tony Leahy, head of human resources and PR at Bank of Cyprus UK, says: ‘While we show the sterling equivalent of the Cypriot Deposit Protection Scheme limit on our website so that our customers are aware of currency movements, in our experience customers primarily make their saving decisions based on the stability of the bank and the quality of its offering.’

The bank is planning to move to a full UK incorporation, which would bring all deposits under the wing of the Financial Services Compensation Scheme. It hopes this process will be completed late in the summer, but for the moment, the Cypriot rules still apply.

Triodos does not quote any sterling value for the Dutch protection scheme on its website, but directs customers with further questions to its call centre. The bank says it is keeping in touch with the Financial Services Authority and is monitoring the situation closely should the euro slump further.

ING Direct was last week using the May 1 exchange rate, which valued the bank’s protection under The Netherlands’ Deposit Guarantee scheme at £81,873.

Martin Rutland, spokesman for the bank, says: ‘We update our exchange rates on the first day of each month, whichever way the markets are moving.’

Laura Blackwood, 33, a primary school teaching assistant, is comfortable saving with ING Direct. She has been a saver with the bank for seven years. Laura has both an Isa and a regular savings account, and used the accounts to help her build up a deposit for her house in Middlesbrough.

Laura, who is in training to run five kilometres in one of the nationwide Race for Life events scheduled for coming weeks to raise money for Cancer Research, was attracted to ING by its competitive rates and by ‘a website that is so easy to use’.

But Laura did her homework before opening the account and knew that she was signing up with a Dutch bank.

And she remains comfortable with her choices. ‘I feel reasonably confident at the moment,’ she says. ‘The Dutch economy is quite strong and I’m probably at least as secure as with a British bank.’

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