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.

One of the ironies of the explosion of the various money making schemes available on the Internet in recent years is that it’s come at a time when it’s become virtually impossible to get the ideal type of bank account for these activities namely an American one.

However, recently there’s been a slow but growing number of alternative banks starting to fill in the gaps that the 9/11 security crackdown forced normal American banks to create. Thus far these have been quite limited in capability but that’s starting to change.

For example, Gem writes about one upcoming innovation from Payoneer which is basically creating a virtual bank account linked to the prepaid debit card that they issue on behalf of a number of organisations. It’s currently in the “coming soon” category but will permit you to quote a real bank account number to the likes of paypal thereby making it possible to convert your virtual money into the real kind by way of their debit card.

I suspect that there’ll be more such innovations coming over the next year as already paypal themselves are rolling out a similar, albeit more limited, scheme in some countries.

In big hotels towels and whatnot go “missing” and it’s classed as wastage basically because it would be pretty difficult to identify who’d made off with things as so many different people are involved.

However, in our place which is very much at the smaller end of the scale, there are very few people involved so it’s easy enough to identify the culprits. For example, just this morning a family checked out and made off with four of our towels. Sometimes you wonder why people do that but in this case it’s pretty clear: they had ordered four breakfasts but only ate one. Therefore in lieu of the three breakfasts which we’d charged them for they thought that they’d take two little towels and two big ones.

Net effect? Well, they’ve been charged EUR 40 and received an e-mail letting them know we’ll refund it if we get the towels back next week.

Now, what they’re going to say is that they didn’t do it and obviously it must have been our cleaning person. Well, as it happens I’m the person who both puts the towels into the rooms and takes them out again. I put six in and took two out therefore they took the other four.

When you’ve collected a few domains and are running a number of websites after a while you start getting what can sometimes become a flood of peculiar offers.

Mainly, for us, it’s the peculiar bookings. Nearly always these are from Dr SomeBodyOrOther who represents some Christian organisation and who wants to send a large number of delegates to us for some conference in the near future.

On the more general front there’s the stream of link exchange offers from some incredibly dodgy websites indeed. On the other hand, I’ve just done a link exchange with A Personal Finance Guide which is close to being the American mirror image of Financial Perspectives.

And then there’s the business offers of various kinds. The latest is effectively a franchised dating site. Some of these look quite interesting eg for the dating site it would appear that the only upfront cash required would be to register a domain so I’m thinking about that one.

The liquidity ratio of a bank is something that doesn’t matter to most people but it’s something that has become rather important following the collapse of the Northern Rock.

Oh, sorry, it didn’t collapsed. It just didn’t have any money of its own to give out to its customers.

What the liquidity ratio is is the percentage of the assets of the bank that are held in cash ie the amount that they can actually pay out. For the UK, the average liquidity ratio is just 3%. That might seem pretty low but in reality it’s more than enough as there’s obviously a constant flow of deposits and withdrawals.

However, when the flow is all outwards as in the case of the Northern Rock, that 3% isn’t really enough and that’s when they need to pay a visit to the Bank of England to ask for a few quid to keep them afloat.

As we said last before, the Northern Rock is finished. In reality that probably doesn’t matter as it’ll be taken over by one of the banks that were very keen to buy it just a year or two back. Let’s not forget that that they were very highly thought of not so long ago as an excellently run mortgage bank which just goes to show that having an excellent reputation doesn’t mean that a bank is “safe” (the Equitable Life was also very well run, of course).

This all begs the question as to whether the Bank of England should support the Northern Rock. After all, it didn’t support BCCI in 1991. What’s different is that the Northern Rock is a UK owned institution and the BoE want to maintain the image of the UK banking system being a safe place to bank. Something to bear in mind when looking for somewhere to deposit your money as several of the banks paying the top savings rates aren’t UK owned.