Last week we vented about how badly depositors are rewarded for capitalising much of the banking system. In case you missed it, take a look here.
Our grievance was not just to do with low interest rates. We simply don’t believe depositors understand the risks they take when lending their hard-earned to the banking mega-casino.
Given our beliefs here we prefer to keep our liquid savings away from banks whenever possible.
There are a few options we like here – some as shiny and as old as the hills, some ultra-modern, digital and slightly confusing and others are just ways of doing things together and bypassing the banks.
Listen to our chum, Dave Fishwick
You might have seen media coverage of something called the Bank of Dave recently.
It’s essentially a credit union started and guaranteed by entrepreneur Dave Fishwick. This serial entrepreneur hit the headlines with his grapples with the lovely FSA and his massive local popularity up North where he’s conducting a ‘very interesting banking experiment’.
A very good experiment if you ask Bogpaper!
The Bank of Dave is a credit union where local people lend to local borrowers, via the institution which vets borrowers the old school way, by going and meeting them, shaking their hand, looking them in the eye, seeing where they live and having good long talks about their business.
There is no leverage, the reserve ratio is 100% and Dave personally guarantees deposits.
The Bank of Dave is a roaring success so far, but there are other credit unions to look at for parking your savings too; just check this list from the now deservingly cashed up Martin Lewis.
We’re big fans of credit unions and Dave, who took on and beat the FSA.
But credit unions have been given a modern twist as well.
Peer to peer lending
Peer to peer (P2P) lending online isn’t much different to the Bank of Dave and other traditions.
A few sharp looking websites, a bit more jargon, a few more computers making lending decisions but other than that P2P lending is essentially us lending money to one another without the banks.
The P2P lending industry in the UK has developed quite a bit in the UK and US, especially since the Credit Crunch. Bogpaper readers might well have heard of names like Zopa, Funding Circle, RateSetter etc.
Online P2P lending is also done without leverage, 100% reserve ratios and less risk than many of our well-known banking giants.
We should say that this industry needs to find ways to get money out to borrowers faster, as there are stories of lenders having their money sat there for weeks without being lent out and put to work.
We also look forward to seeing the development of this form of finance over the years.
Let’s get digital
A veritable media storm has erupted this year over some odd sounding, digital currency unit by the name of Bitcoin.
Bitcoin is a decentralised, community owned, audited digital currency that was mined by the lucky early adopters. Supply, and thus value, of Bitcoin is restricted by algorithms and encryption technology. The currency’s ledger is meant to be impossible to corrupt.
Whilst this might sound uncomfortable to you, essentially what digital currencies are trying to do is create viable alternatives to our heavily printed, confetti money issued by central banks.
There are now a whole host of other emerging digital currencies such as Feather Coin, Light Coin and others, bringing welcome further competition, evolution and innovation to this space.
Once more the internet and digital world are disintermediating the over-regulated and over-protected status quo.
Whilst these ways of storing liquidity might evolve to become real threats to the monetary system in future, at this time they are new, potentially risky and subject to volatile price movements and flux.
For now we’re enjoying just keeping a few hundred quid in these anti-fiat creations, whilst using the tweet streams of fan-boys like Max Keiser to make the odd punt.
Our favourite: old yella’
We couldn’t talk about savings mechanisms without mentioning the oldest, most proven and most ultimately liquid of all: gold bullion.
Gold prices have taken somewhat of a smack this year, but this doesn’t divorce us from the money of kings. We’re not looking to speculate with gold, but preserve wealth over the long run.
Holding gold bullion, as James Delingpole will tell you too, is like holding insurance against your other worldly assets and the financial system. You hope you don’t have to call on it, but we sleep a damn site sounder owning a few ounces of the stuff. Some lucky readers might own kilos. Perhaps one of you even owns a tonne… if so, please get in touch and help us and Bogpaper fire some serious bullets in the war of ideas the statists and Keynesians are currently winning!
Gold bars, in a vault, even if traded online, are unique financial assets in that they have almost no counter party risk and they have ZERO credit risk.
Gold bars are the foundation of our humble piles. (We also like a bit of silver too, but that’s our naughty little secret!)
Only talking about liquidity
Naturally we are only talking about liquidity here and not investments… maybe we should do that another day. These just happen to be a few of our favourite forms if it.
We think big banks are often badly run with balance sheets too complicated, silos within them brewing poison that can spread and hamstring the whole organisation, we don’t think deposit insurance can really pay out when it might really need to and we find politicians and central bankers too prone to err, waver, duck and weave.
As a result we’re opting out and looking for alternative ways of saving.
Obviously we’re not giving advice here. This is just how the malcontents at Bogpaper towers feel. Advice comes with a sting in the tail these days, in a world where caveat emptor is about as popular as Jimmy Saville themed birthday cakes. Do your own digging, thinking and research and good luck with it. We don’t want the regulators bending us over the table.