What is a Deposit Protection Scheme?

With all the worries about banks' financial viability, many people are concerned about their savings. A portion of your money is covered by one or more government guarantees, but how do these schemes work and how safe is your money?

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Here's some bad and good news for British savers. If your money is held in an offshore account in the Channel Islands or Isle of Man, you don't get the same guarantee on your deposits if the bank goes bust as savers on the 'mainland' do. Under the 1991 Deposit Protection Scheme, 75% of the first £20,000 of a deposit in Isle of Man accounts is protected, according to Ernst & Young. There's no similar scheme on the Channel Islands, so that might not be a great place to be keeping your cash right now.

The good news is that at the weekend, the Irish government increased the statutory limit for its deposit guarantee scheme for banks and buildings societies from €20,000 to €100,000. Irish savers now know that the first €100,000 (about £78,000) of their savings will be protected by the government if their bank goes bust. And British savers can benefit from the move too. Deposits with banks operating in another European Economic Area country, and with a branch operation in the UK, are covered under the home country's system.

So, as well knowing that you can now protect £35,000 of your savings through the British Government scheme by putting your money in a British bank account, you can now open up a bank account with a UK branch of, say, Bank of Ireland or Anglo Irish Bank, and get a further £78,000 or so protected by the Irish Deposit Protection scheme.

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Anglo Irish Bank offers one of the best rates with its Easy Access Deposit Issue 2 account. The minimum deposit is £1, and it pays out an interest rate of 6.4%. Go to Angloirishbank.co.uk, or call 0845-455 2222. To check if any other specific bank accounts are covered by the Irish scheme, call the Irish central bank on +353 1 4104000

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