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British savers who placed their money in Irish banks have been warned they are longer covered by the UK's compensation scheme.
Customers with Anglo Irish Bank and the Post Office, which offers accounts provided by the Bank of Ireland, have this week received letters telling them that if their bank collapses they will be entirely reliant on the Irish government for compensation.
The letters, which have been prompted by an edict from the Financial Services Authority (FSA), warn that the UK's Financial Services Compensation Scheme (FSCS) would play no part in compensating savers if an Irish bank failed in a similar way to Icesave.
A spokeswoman for the FSCS said: "Because the Irish deposit scheme covers 100% of deposits, we would no longer be involved in the event one of the Irish institutions failed."
The move has led to an outcry among UK savers who, in some cases, have been trying to get their money out of the Republic. They have questioned whether they want their money in a country whose economy looks even more shaky than that of the UK.
Most savers welcomed the announcement last September that the Irish government would guarantee 100% of all savings deposited in its banks until 2010. Back then there was a rush of money into Irish institutions – particularly the Anglo Irish Bank which was offering some of the best savings rates available. At least 170,000 UK savers now have their money in Irish banks.
However, last week the Irish government stepped in to nationalise Anglo Irish and yesterday bank shares in Dublin were hammered as dealers reacted to more bad news on the Irish economy.
Honourable agreement
Some savers have questioned whether the 100% guarantee could be honoured if the events of last autumn, when Icelandic banks sensationally collapsed, were repeated in Ireland. They felt happier knowing that the UK compensation scheme would have played a part in administering any refunds.
Saver Jamie Russel from Shropshire tried to withdraw his money out of a fixed-rate bond from the Anglo Irish Bank, but was told he could not access the cash until his bond matured, unless it was an emergency.
"In this case the bank would consider closing the bond early at their discretion and charging 60 days' interest. When I mentioned my concern about Anglo-Irish's balance sheet and Ireland's possible need for an IMF bailout, I was told that these did not constitute an emergency," he said.
"I am aggrieved because I feel I was mis-sold this product. I was specifically told my deposit was at least partly covered by the FSCS, yet now that cover has been rescinded," he said.
Later the bank agreed to refund his money, albeit with the loss of interest.
Elisabeth and Mike Field, from Bedford, also feel let down by the change. "We accept that the current Irish scheme is a good one and does appear to cover UK investors. However, we chose to invest with the Post Office because it was covered by the UK FSCS," they said.
"We are surprised that the Post Office can alter the terms under which we invested after the event. We do not want the extra complication of having to claim under another country's scheme, should it become necessary, or to risk the problems that can arise when a smaller economy ,such as Iceland or Ireland, suffers a dire financial crisis."
The Post Office said it had no evidence that savers were removing their cash as a result of the letter. In a statement it said: "Following a request from the FSA, we have written to customers informing them of the changes to the compensation arrangements linked to their savings account with the Post Office.
"All customers benefit from the Irish Depositors Protection Scheme, which guarantees unlimited deposits with Irish banks until 2010."
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