The Cyprus bailout warns us that our savings are only safe as long as our economy is robust. As a triple dip looms, it may be time to start thinking of alternatives, says Kathryn Gaw

WE may have awful weather, but who would really want to be in Cyprus at the moment?

The banks were shut for a week, ATMs are only allowing people to withdraw about £85 in cash, and savers (including tens of thousands of Brits) are being threatened with a tax on their deposits.

If you are unlucky enough to have saved more than £85,000 in Cyprus, you risk losing as much as 40 per cent under the terms of the new bailout agreement.

Cyprus is in this situation because the alternative would be to let the country go bankrupt.

While Britain is not quite at that point yet, things are not great.

As we teeter on the brink of an unprecedented triple-dip recession, the current cold snap is costing the economy between £473m and £679m a day and, according to our very own Governor of the Bank of England, Sir Mervyn King, the global financial crisis is “far from over”.

Across the Channel, Dutch finance minister Jeroen Dijssebloem has sparked controversy by claiming that the “Cyprus model” of taxing savers’ deposits could be applied elsewhere in the eurozone.

Obviously this does not include the UK, but nothing is impossible, especially after George Osborne gave the Bank of England carte blanche to use any “new unconventional monetary policies” during his Budget speech.

This could very well include the possibility of negative interest rates, an indirect tax on savers’ accounts at a time when only three savings accounts are even able to beat the rate of inflation.

In fact, Nationwide’s attractive FlexDirect current account is currently beating all the high street savings options, by offering five per cent AER on deposits up to £2,500.

However, any savings you have above this amount will not be offered interest, meaning that while £2,500 in savings will earn you £125 in interest each year, £10,000 will earn the same amount, the equivalent of 1.25 per cent.

So with inflation rising, recession looming, and the everpresent threat of a savings tax, how do you protect your hard-earned cash?

  • Don’t stuff it under the mattress: while you may save on bank fees, inflation will make short work of its value; 􀁥 Stocks and shares may seem like a risky option, but are they any less risky than keeping your money in the UK’s debt-ridden, scandalmired banks? If you hold a diverse portfolio of assets, and shelter your investments in a stocks and shares Isa, you could make a healthy return on your savings, and you’ll keep any interest you make.
  • Or you could take Sir Mervyn’s advice and look at non-UK banking options. He surprised businessman Mike Benson last month by personally responding to a complaint that no high street bank would loan him the money for a van, recommending Swedish newcomer Handelsbanken.

While the bank is thought to be a lot more loan-friendly than most, it does not offer standard interest rates for savings accounts, preferring to deal on a case-by-case basis.

  • Peer-to-peer (P2P) lenders are beginning to enter the mainstream, with a new firm, Assetz Capital, launching last week with £1.5m. The more established Ratesetter has matched nearly £63m to date.

Although P2P lenders are not yet regulated, the Government is in talks with industry leaders with a view to developing this modern version of banking.

  • Finally, exploring the buyto- let housing market may be a good long-term option.

There will always be alternatives when it comes to saving or investing, but in the end, most people choose to keep their savings in the bank where they are supposedly safe.

Maybe it’s time to spring clean your savings, before the decision is made for you.