Tuesday, 21 April 2009

Abbey offers 3.5 percent on your ISA - Beware!

Britons are allowed to put £3,600 cash per year into a tax-free Individual Savings Account (ISA). The most generous rate on offer at the moment seems to be from Abbey (prop. Banco Santander, Spain) at 3.5% - compared with less than 2% from HSBC, or 3% from Halifax (prop. Royal Bank of Scotland (prop. Lloyds TSB)).

The offer from Abbey may look good but let's not forget that this is a risk premium. The last bunch of banks to offer over-the-odds were Icelandic, and where are they now?

Abbey has recently had its rating downgraded to C- and its stable-mate Alliance and Leicester to E+. (link)

Now I don't believe that the British government would let these High Street names go bust but if the ultimate parent, Santander, were to experience problems it's not clear which government could or would bail them out.

So this isn't good news...

The Brazilian financial daily Folha de Sao Paulo reports that Santander faces large losses from car loans, known as Brazil's "subprime". Fears are mounting that Argentina, Ecuador, and Venezula may opt for populist measures and even outright default if the downturn endures. (Link)

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