gsidhu

Folks - An article from Morning Money. I dont normally read too much into these, but this one did make me wonder whether i should be on the safe side and move all my life savings over to Oz, even though I dont need it till mid 09 for the house build.

Have a read and see what u think

There’s another potential banking crisis on the way in the UK.

As you’re probably bored of hearing by now, our poor old British banks have been really feeling the pinch over the last few months. Yet unlike the rest of us, the bankers have been quietly scurrying round to the Bank of England on a regular basis to refill their moneybags.

But sadly for the banks, their cosy little scheme is coming to an end. Even worse, they’re now completely hooked on it. Any re-hash will just make their addiction worse. But unless someone cooks up something soon, it won’t be just banks going bust…


The Special Liquidity Scheme has kept the banks going

Feeding a habit doesn’t make it go away. That’s so obviously common sense it’s hardly worth saying. But the problem facing the Bank of England earlier this year was that the UK’s commercial banks had already gone into overdose territory.......

<<snip>>
See link in post below for full article
<<snip>>

Basically, it seems that some of our banks are all but bust. That means hardly anyone will be able to borrow any money. This week’s estimate by Richard Roberts of Barclays that 150,000 UK businesses could close within the next 15 months could easily prove much too low. We’re being told by our government that Britain is in the same boat as everyone else. If so, that would be fairly cold comfort. But the harsh truth is that it looks like we’re going to be facing something a lot worse than the rest…

JPSUPERHOOPER

i wouldnt trust them.

send it to me i'll look after it for you

Pollyana

AS this looks like a copyright article, could you please post the link to your source,

gsidhu

sure heres the link

http://www.moneyweek.com/news-and-ch...ime-13550.aspx

Beppe

Safer than in an Oz bank!

In the UK your funds are protected by the Financial Services Compensation Scheme. In the event of a bank collapse up to £35K of your funds are 100% protected. Note that this is £35K per institution, per individual.

If you have more than £35K in savings, you just need to spread it over several banks to fully guarantee your savings. To avoid any doubts make sure that these banks do not share a common parent.

Your savings in Oz are currently unprotected in this way.

Reading fan

We are with Northern Rock - savings are 100 % guaranteed - they have to give you 3 months notice if this guarantee is withdrawn. Despite their recent troubles probably one of the safest at the moment.

Townley

Yes you are guraranteed to get back £35K but to be honest with a recession looming and you suggesting that you want the funds available by mid '09 perhaps you should be thinking about transferring it now anyway... if the UK does enter into recession then the value of the pound will drop, and interest rates will have to fall. With a average current interest rate of 4-5% in the UK right now compared with 7-8% in Oz, you will eran more interest. Also even if you do miss out on a slight inflation in the exchange rate between now and mid-09 (which i doubt) surely the fact that you will have to pay tax on any additional benefit gained from a better exchange rate would conteract that?!?

Im wondering what to do too - but trying to find an Oz bank that will take our funds 12 months before we planto arrive is proving a bit of a challenge!

Lenmil

It is a worry about your money in the bank is not as safe as you think. Look at the 1930's. A link here gives you an idea, in the UK. http://www.thisismoney.co.uk/saving-...6&in_page_id=7

It would pay to spread your money and hence your risk.

22B

Townley - FYI, I opened a Westpac account online a good 9months before we touched down - follow the links until you get to the 'Migrant Account'.

But be warned - the big drawback is that you have to turn up in person at the receiving branch to access your money...... be very sure that you really are going to Aus, otherwise you'd have to fly out here just to get your cash!!!!!

Bernieboy

From my experience as a bank robber,NO

Townley

Thanks so much for letting me know - i will have another look into this! I am pretty sure I am going to be honest... I use to live there, among many other places so this is not a new concept for me. Added to that my OH is an aussie - so doubt I will get much kick back from him, he misses his fishing too much! We have booked our flights out of the UK (although we are going to take about 10 months to get there!). We will not actually need the cash we are transferring until we buy a house... we have another lump of savings to fund our travels )

Thanks for the pointer!

TP xxx

Beppe

Let’s put this one to bed with a little mental arithmetic:

I have £100K, I transfer it to Oz at 2.1 to give me $210K. I put this in a bank that gives me 2% more than a UK bank for one year. I therefore gain $4.2K more than if I had left it in the UK. It’s a naff bank account which only pays annual interest as I can’t be bothered to do compound interest in my head, but I’ll compensate by underestimating the UK gain too.

Now say I have another £100K, which I transfer at 2.3. A twenty cents per pound gain, and therefore a capital gain of $20K. Let’s say I’m an honest tax payer and declare this gain, I do not qualify for any exemptions and I have other capital gains that push me over the thresholds. Therefore, the greedy tax man takes 50% of my gain. This leaves me with $10K.

Which would you prefer $4.2K or $10K?

In very recent times we’ve seen a gain of ten cents per pound from ~2.05 to ~2.15. This is despite all the horror stories in the UK of recession and the Ozzie propaganda machine pumping out the “we’ll be alright ‘cos we dig stuff up” message. Therefore, I’d suggest it’s very likely that we’ll see a ten cents gain again even in the short term. Even at ten cents per pound you are still slightly better off leaving your money in the UK by $1k or so. I’d put the chances of at least a ten cent gain in the short term as good as 50/50.

The risk of course in the short term, is that you do not see the gain before you need to transfer your money. The longer you can “wait” the better. Therefore, I wouldn’t advise playing the waiting game if you worry about risk and you absolutely need to have a certain amount of dollars by a certain date. If the exchange rate now gives you what you “need”, exchange the money now and forget about currency fluctuations.

If you can afford to wait then wait. I think a lot of recessional fear is already priced into sterling and there are also likely to be some financial shockers coming out of Oz in the next six months. It all depends on what else is happening on the day but if I was betting man, which I am, I’d say there is a good chance that we will see some short lived spots a lot higher than 2.2 at some point in the next couple of years.

I’ll just add that whilst I’m prepared to take a calculated “risk”, I wouldn’t advise my elderly relatives to do likewise with their pension money. You can put a value on stability and certainty too.

Townley

Thanks - very useful!

Beppe

An example of why currencies fluctuate regardless of economic fundamentals (like a booming mining sector) was seen last summer.

The exchange rate was around the 2.3 level and “sub-prime” had recently become a “hot-topic”. The currency speculators suddenly panicked and we saw a brief spike up to the 2.5 level for a couple of weeks. Purely driven by sentiment. The carry traders began bailing out of both GBP and AUD, but the higher rates in Oz meant that there was more speculative money there in the first place and it therefore hit AUD harder.

This is why I believe a spike of 2.5 is as likely as a trough of sub 2:1 level. It’s volatile out there at the moment and sentiment can turn on a six pence. Currency speculators are a notoriously fickle bunch. Once they start heading for the exit, it’s like an avalanche.

The people who transferred their assets on that last 2.5 spike are the big winners of the last 12 months.

You just have to have your UK bank account hooked up to a currency broker like HiFx, Ozforex etc, so you can transfer your funds on a good exchange rate on the day without any notice. I’ll also add, don’t get too greedy. Weigh up your own risk, reward ratio and transfer when it satisfies your needs not your greed. If you forever chase the “best rate” you’ll more likely end up loosing out.

In 1996 we saw spot rates below the 2:1 level, in 1997 we saw spot rates above the 2.5:1 level. The cycle continues. It’s how the big boys make their money and they will continue to drive it in this way regardless of what happens at the fundamental economic level.