Martin's advice questioned

Pruechennells56

I'm trying to find a home for some money from an ISA which is just maturing and looked at the advice given on the website. It recommends Shawbrook Bank, whose customer reviews are appalling, and FCMB Bank who appear to be a Nigerian bank.  Have I misunderstood? Can this be correct?

Alexland

It's not advice just information about the highest paying savings accounts that have FSCS protection for balances of up to £85,000.

dunstonh

Martin's advice questioned

Martin does not give advice.  He gives opinion and journalist reporting.

It recommends Shawbrook Bank, whose customer reviews are appalling, and FCMB Bank who appear to be a Nigerian bank.

He is not recommending those.   They just appear in the list stating factual information.   They hold a UK banking licence.   And that is the criteria to be on there.  So, why should a Nigerian bank be exempt in your opinion?

epm-84

When Raisin (savings marketplace) launched with an introductory bonus and an ICICI (an Indian bank) fixed bond was the best rate within Raisin, that was included in the MSE weekly email.  Many people took up the offer and got their bonus and interest, the fact an Indian bank was involved was irrelevant.

The time there was a problem with the highest interest rate bank was when it was an Icelandic bank offering something like 6% just before the financial crash.  On that occasion Martin personally reassured people that putting money in an Icelandic bank was perfectly safe.

eskbanker

epm-84 said:

The time there was a problem with the highest interest rate bank was when it was an Icelandic bank offering something like 6% just before the financial crash.  On that occasion Martin personally reassured people that putting money in an Icelandic bank was perfectly safe.

Do you have a link to his actual words?  I thought the gist of his comments back then (as now) was that for institutions who are members of compensation schemes, these protect qualifying deposits up to specified amounts, but don't recall unconditional personal assurances about bank safety as such.

masonic

epm-84 said:

The time there was a problem with the highest interest rate bank was when it was an Icelandic bank offering something like 6% just before the financial crash.  On that occasion Martin personally reassured people that putting money in an Icelandic bank was perfectly safe.

Are you suggesting that offering "something like 6%" just before the financial crash was some sort of indication that it was too good to be true? For the record, Icesave offered a 6.7% fixed rate account (but at the same time Nationwide was also offering a fix at 6.7%, though you had to be an existing current account customer to open it). Rates north of 6% were completely normal in those days and the Icelandic banks only topped the tables by a relatively small margin.

My recollection was that Martin highlighted that the Icelandic banks were passported in to the compensation scheme and the first part of your compensation would come from the Icelandic scheme, topped up to a maximum of £35k from the FSCS. As such, the protection offered was on a parity with UK providers, but there could be added complications in claiming the compensation. All that turned out to be correct, despite the actions of the Icelandic Government and the ensuing international dispute. Nobody predicted that savings above the compensation limit would be compensated.

Though I don't recall Martin ever stating saving in an Icelandic bank was "perfectly safe", it turned out to be as safe as saving in a UK institution such as Bradford & Bingley. He definitely did warn people about savings above the compensation limit, even back then when a bank failure was unthinkable.

epm-84

masonic said:

epm-84 said:

The time there was a problem with the highest interest rate bank was when it was an Icelandic bank offering something like 6% just before the financial crash.  On that occasion Martin personally reassured people that putting money in an Icelandic bank was perfectly safe.

Are you suggesting that offering "something like 6%" just before the financial crash was some sort of indication that it was too good to be true? 

No I'm said offering something like 6% because that meant it was one of the best savings rates for online accounts and was why MSE included it as a best buy.  I had a Barclays ISA which I think had an interest rate of 5 point something percent but ISA with rates that good usually didn't allow previous year's subscriptions to be transferred in.

I do recall Martin making TV and radio appearances where he said don't worry that it's a bank in Iceland, your money is perfectly safe.  Unfortunately, some local authorities decided it was perfectly safe for them to put their rainy day fund in to a high interest account in Iceland and their rainy day funds disappeared, never to be seen again - Cheshire County Council was one such example.

epm-84

eskbanker said:

epm-84 said:

The time there was a problem with the highest interest rate bank was when it was an Icelandic bank offering something like 6% just before the financial crash.  On that occasion Martin personally reassured people that putting money in an Icelandic bank was perfectly safe.

Do you have a link to his actual words?  I thought the gist of his comments back then (as now) was that for institutions who are members of compensation schemes, these protect qualifying deposits up to specified amounts, but don't recall unconditional personal assurances about bank safety as such.

As I didn't decide to record TV and radio programs Martin featured on in 2008 I don't have a link to his actual words and if I did they would likely be on a DVD or tape that I wouldn't be able to share for copyright reasons.

Yes I seem to recall the underlying message is there's a financial services compensation scheme so the money is just as safe in Iceland as in the UK.  However, what then happened after the collapse is a legal dispute about whether the Icelandic compensation scheme covered UK deposits.  I seem to remember the end result was access to online accounts was reinstated for a limited period and people were told to withdraw all their money within x days or they would lose it forever.

bowlhead99

Yes, the UK government provided financial support so that UK retail customers who would have been covered by the compensation scheme were able to get their deposits out. To help maintain the public's confidence in the banking system, the Treasury provided enough support that you could get your full deposit out even if it was above the compensation threshold, and customers either got paid direct or had their accounts transferred to ING Direct 

So, anyone who had listened to Martin's advice that their money would be safe because it was covered by the compensation scheme, was fine; and even people who had ignored his advice to be aware of the compensation limit and greedily put more money in at a high rate throwing caution to the wind, got away with it.

Cheshire county council along with others did have several million with Heritable, a Landsbanki subsidiary. As you say, it was 'rainy day money', the £8 million being only 4% of the total £200m that Cheshire had with UK and international financial institutions  (their budget was about a billion back then).

Presumably the local authorities didn't make their deposits based on whatever consumer 'best buy' accounts were being mentioned by Martin and co in the weekly MSE tips newsletters, though bad decisions are made in local government treasury functions all the time.

masonic

epm-84 said:

masonic said:

epm-84 said:

The time there was a problem with the highest interest rate bank was when it was an Icelandic bank offering something like 6% just before the financial crash.  On that occasion Martin personally reassured people that putting money in an Icelandic bank was perfectly safe.

Are you suggesting that offering "something like 6%" just before the financial crash was some sort of indication that it was too good to be true? 

No I'm said offering something like 6% because that meant it was one of the best savings rates for online accounts and was why MSE included it as a best buy.  I had a Barclays ISA which I think had an interest rate of 5 point something percent but ISA with rates that good usually didn't allow previous year's subscriptions to be transferred in.

I do recall Martin making TV and radio appearances where he said don't worry that it's a bank in Iceland, your money is perfectly safe.  Unfortunately, some local authorities decided it was perfectly safe for them to put their rainy day fund in to a high interest account in Iceland and their rainy day funds disappeared, never to be seen again - Cheshire County Council was one such example.

Here is what his website had to say on the issue, at the time it listed an Icesave savings account as the best buy in late 2007:

So he did consider it "ridiculously unlikely" that a bank would go bust, and considered it "a touch of overkill" to spread your money around to stay within the FSCS limit, but those weren't really unreasonable views at the time. Earlier in the same year, the compensation limit was 100% of the first £2,000 and 90% of the next £33,000 and there was nobody advocating saving no more than £2,000 per bank.

epm-84 said:

Yes I seem to recall the underlying message is there's a financial services compensation scheme so the money is just as safe in Iceland as in the UK.  However, what then happened after the collapse is a legal dispute about whether the Icelandic compensation scheme covered UK deposits.

He turned out not to be wrong, despite the international legal dispute. The legal dispute had no impact on consumers, it was a battle between the UK and Icelandic Governments that concluded a long time after savers were compensated. The Icelandic Government essentially decided to renege on their obligation to compensate savers, but at that time the FSCS still had an obligation to top up compensation coming from foreign compensation schemes to the UK level. As mentioned above, the UK Government decided to go beyond the obligations of the FSCS and compensate 100% of the losses of all qualifying savers without observing the normal FSCS limit.

Since the banking crisis, foreign compensation schemes act independently of the FSCS, and I would never save with a financial institution that did not have a UK banking licence and FSCS cover.

epm-84 said:

I seem to remember the end result was access to online accounts was reinstated for a limited period and people were told to withdraw all their money within x days or they would lose it forever.

You seem to remember wrong. I was one such saver who claimed through the online portal. Here is an excerpt from the email I received from the FSCS in November 2008:

"If you do not seek payment within one month from the date of this email, you will be contacted separately by the FSCS with details of how to make a claim for your deposits with Icesave. This will be through a paper-based application process once the electronic process is complete. This process will be slower (we aim to complete this process so far as possible within 6 weeks of receipt of a completed application form), but you will receive the same amount no matter which process you use (unless you hold a fixed term deposit and opt to await payment until the end of the term, as explained above)."

As alluded to at the end, some people elected to hold their fixed term deposits until the end of the term and receive their full capital and interest from the FSCS at the original maturity date of their account (that involved claiming through the paper system).

Nobody was told "to withdraw all their money within x days or they would lose it forever".

Of course Icesave was not the only institution that went bust. Kaupthing Edge and Heritable Bank customers simply had their accounts moved to ING Direct. That process was seamless and they were not required to take any action to avoid losing their money.

As alluded to above, it wasn't just Icelandic banks that went bust. UK based Bradford & Bingley customers had their accounts moved to Abbey in a very similar manner to the Icelandic banks' accounts moved to ING.

epm-84

bowlhead99 said:

Presumably the local authorities didn't make their deposits based on whatever consumer 'best buy' accounts were being mentioned by Martin and co in the weekly MSE tips newsletters, though bad decisions are made in local government treasury functions all the time.

I think the more publicity a bank or building society gets for good interest rates increases the chance that people have heard of it and look in to what the provider offers when they are looking at what financial products are on the market, either personal or business.  Of course MSE isn't the only site publicising the 'best buy' products.