Anglo-Irish Bank nationalised - what does this mean?

Published:

16 January 2009

Topic:

News,Money,Savings

In case we needed reminding, developments over the last 24 hours indicate that the financial crisis is far from over: the UK Government is reported to be considering the creation of a 'bad bank' which will take on many of the risky loans that are being blamed for the ongoing credit crisis; the Bank of America is to receive a further $20billion bail out; another American banking giant, Citigroup, has announced it is to split the company into two having suffered $8.29billion last year; and the Irish Government has nationalised Anglo Irish Bank.

With Anglo Irish Bank having been a major player in the UK savings market over recent years, many savers will be wondering what the nationalisation means, particularly as the bank continues to offer some of the leading savings rates. We answer the main questions.

Why is Anglo Irish Bank being nationalised?

While in Britain, Anglo Irish Bank is most well known as a savings provider, it is a large lender in Ireland and has been badly hit by the downturn in the Irish property market and the liquidity shortage affecting lenders worldwide.

Before Christmas the Irish Government announced plans to pump €1.5billion into the bank in a bid to stabilise it, but it has now decided that is not adequate and that full nationalisation is necessary to secure its future. The reason for this, it said, is not because Anglo Irish Bank is insolvent, but that the bank was at risk of collapse due to worsening investor confidence. Nationalisation will safeguard the money deposited with the bank.

I have savings with Anglo Irish Bank, should I be worried?

No. There is absolutely no need to panic. The Irish Government has guaranteed all deposits and the fact it has stepped in to nationalise the bank means that savers' money should actually be more secure as its collapse is now highly unlikely.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Naturally, any savers with Anglo Irish may be concerned about the safety of their money but it's worth noting that the Government guarantee means their deposits are fully protected."

What does it mean going forward?

The message from Anglo Irish is that it is 'business as usual'. The bank is still offering accounts to UK savers - its one-year fixed rate bond is paying 4.6%, which is one of the leading rates available. Only ICICI's HiSave fixed rate account beats it at 4.65%.

Anglo Irish also has a penalty-free easy access account but it is not as competitively price. The rate is 2.50%, which is 1% above the Bank of England base rate, but there are a number of deals that beat it. ING Direct and Egg both have accounts paying 4%, although they do include 12-month introductory bonuses. If you are looking for an account without a short-term bonus or withdrawal restrictions, Yorkshire building society's Internet Saver account pays 3.75%.

Related Links

• Compare more than 4,000 UK savings accounts
• Watch our video, 'Banks rescued again, will it work?'
• Read Clare's article 'Who owns who?'
• Read Clare's article 'How safe is your bank?'