Saturday 3 December 2016

What to do with your savings if the euro collapses

Published 04/12/2011 | 05:00

Amid much speculation, scaremongering and ill-informed chat about the collapse of the euro, many people have begun asking what is the right thing to do with their savings should the currency fail.

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With everyone looking for the inside track on what to do, a barrage of often conflicting advice has been given, leading many to be confused and scared.

It is important to realise that there is no hard and fast rule that suits everyone and below are a few options currently open to people.

OPTION 1: Do nothing

The first and most logical option is to do nothing. Often in a crisis, it is best to remain calm, rather than being panicked into action. If you are of this mindset, you have to believe that the politicians and technocrats will somehow get us through this intact. The events of the last week have shown a real commitment from the political and economic powerhouses to finally get to grips with the euro crisis. The summit will tell us a lot. It could be worth hanging on to see what happens.

OPTION 2: Open a foreign bank account in a more secure currency

If you are not in the mood for sitting on your hands, then there are a number of options open to you.

The first is to open an account in a foreign bank. Some people have already sought to move money to banks like Rabobank, which are foreign-owned but operate here because of their higher credit ratings.

From a practical point of view, you may run into difficulty carrying briefcases full of cash through Dublin Airport and opening an account in Berlin will not be the answer to your prayers. It must also be noted that in the event of the euro breaking up, the Government is very likely to immediately restrict mass outflows of money. No option is pain-free and charges will apply along the way if you decide to move money.

OPTION 3: Invest in sterling or US dollars

While there is much uncertainty about the single currency in investment terms, there is not a strong case for buying up sterling. The euro has kept par remarkably strongly against sterling and the dollar, despite the chaos.

This weekend against sterling the euro is within a penny of where it started the year, at around 85 or 86 pence. There have been fluctuations. The euro went as high as 90 pence in July.

Longer-term, sterling looks set to decline slowly. The UK economy has its own problems, as epitomised by Chancellor George Osborne's lower-than-expected growth forecasts and austerity warnings. It is a similar story with the US, which has been dogged by its own economic woes.

The dollar, which started the year just below $1.34 to the euro, was trading on Friday at just $1.35. Neither sterling nor the dollar look a compelling option at this stage.

OPTION 4: Buy government bonds

On the face of it, such a suggestion seems plausible. It doesn't take a rocket scientist to figure out where strong world economies are. But how strong will they remain if the euro goes bust? Also, if they are really safe, everyone would be hoarding their money there already. Currencies can be volatile and the collapse of the euro could have a major impact on most.

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