Foreign Perspectives

Although many would argue that if Fort Knox accumulates a mountain of gold, then that’s clearly the way to go but it rarely is.

Yes, you can find that gold will appreciate quite substantially from time to time, particuarly when things appear bleak in other financial areas. But, when things pick up again, you’re just left with a pretty lump of metal which doesn’t pay you any interest or dividends.

Shares are obviously risky so if you’re looking for something that’s safe, then you need to avoid them and anything that’s based on them too which means that bonds are out too. Even the banks aren’t really 100% safe. If they’re large enough, the government will usually feel obliged to step in and bail them out, but do you really want to assume that your bank qualifies as being “large enough”?

You might think that I’ve eliminated everything, but there is one totally safe way to hold your money and it’s so simple that most people overlook it. All you need to do is to put your money in the government’s bank.

In practice, few governments allow you to bank directly with their central bank but the central bank normally has a number of offshoots with which you can deposit money and which also have that 100% guarantee. For example, in the UK you can use National Savings (from instant access savings through to fixed term investments) and in America you can buy Treasury bills (a fixed term investment).

What you’ll usually find is that these investments pay a little less than their equivalent as put out by normal banks. For example, at the time of writing, you can get 4.5% from an instant access account for a high street account but only 3.45% from National Savings. That 1% difference is effectively the cost of the 100% guarantee for your money; many depositors with Northern Rock would have been more than happy to pay it.