The "money" sections of the Sunday papers in the UK mainly consist of wheezes for people to squeeze a little bit more out of their savings accounts, or to reduce the cost of their mortgages. In the Sunday Times, in particular, this is underpinned by a tediously repeated belief that the banks are all a bunch of crooks, out to fleece their innocent clients by every available means, fair or foul.
A few years ago, the principal focus of the advice in these sections was on credit cards. New entrants to the market were offering a variety of zero-interest deals, and the papers were assiduous in bringing these to the attention of the so-called "rate tarts", who would enthusiastically move their borrowings from one institution to another in the hope of never having to pay any interest.
The zero rate deals are gone, but the desire to get something for nothing lives on, and the papers are happy to feed it. How sensible is it to take their advice? The Sunday Times's list of "best deals" has always been full of the names of banks that nobody has heard of : ICICI Bank, for example. (Yes, I do know who they are). But there's a lot more to sensible investing than lusting after the best published rate: investors have a responsibility to know just where they are putting their money. If they don't, they shouldn't have much of a leg to stand on if they run into trouble.
The proximate cause of this little rant is a remarkable juxtaposition of articles in today's (10 February) Sunday Times. The "best deals for savers" list includes several minor UK building societies, plus Kaupthing and Icesave, two Icelandic institutions. Turn back a couple of pages, though, and you will find a lengthy article warning of problems in the Icelandic economy and financial system, with particular reference to these two banks. Moody's says the Icelandic financial system is "fragile": ratings downgrades may be in the offing, and there is an ominous suggestion that Icelandic banks have been tapping the UK market because their other sources of funding are drying up.
Still, not to worry: in a sidebar, the Times sagely notes that you can still invest in these institutions and pick up the extra vig, as long as you don't go over the newly-increased £35,000 deposit insurance limit. But wait: if you read a bit further into the sidebar, you'll find that UK investors' recourse to UK deposit insurance only kicks if the Icelandic deposit insurance fails to pay out. So investors could face a long wait to get their money back, in the event that anything untoward were to happen at Kaupthing or Icesave. I wonder how many of the 100,000 UK investors who have stuck their money into Icesave realise that.
Anyone still think that these banks offer the "best deal" for savers? Shame on the Sunday Times for encouraging savers to behave in a way that absolutely defines the term "moral hazard". Mind you, the ST regularly touted Northern Rock as the best deal for mortgage borrowers this time last year, but that's not stopping them from slagging off the poor wounded beast now.
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