The flight to safety is paved with gold

The loss of confidence in financial institutions has given rise to an uncertainty that is unprecedented in recent times, and one outcome is that demand for 100 per cent secure safe havens has gone through the roof.

Savers and investors who believe the credit crunch is going to intensify want to be able to get their hands on their money without having to resort to the bureaucratic machinations of compensation schemes. So, when it comes to being 100 per cent confident in the security of your money, here are the most popular options:

NATIONAL SAVINGS & INVESTMENTS

Until the nationalisation of Northern Rock, NS&I, which is government-backed, was the only state-supported provider of savings products. Interest in NS&I products has been high since the credit crunch began and it's been inundated with enquiries in recent weeks.

The range of products offered is broad and includes some with valuable tax-efficiency.

Premium Bonds, which are free from income tax and capital gains tax, are its most famous product, while its Isas, fixed-interest savings certificates, index-linked savings certificates and children's bonus bonds are also tax-free.

"Given current rates of inflation the index-linked products look particularly attractive, paying 1 per cent above the retail prices index," said Nigel Parsons, discretionary investment manager at Bestinvest.

"Higher rate tax payers would, given the tax-free status of these particular issues, have to find a bank account yielding 10 per cent to get an equivalent net yield."

The security of NS&I products comes with some compromise on rates, as they rarely feature in the best-buy tables. The direct Isa currently pays 5.3 per cent, whereas there are currently several available paying over 6 per cent.

For more information, visit www.nsandi.com.

NORTHERN ROCK

Northern Rocks's status as a safe haven since it was taken into state ownership in February, ensuring its deposits were guaranteed by the government, is something savers have been quick to take advantage of.

Demand for its savings products has been so strong this week that it was forced to withdraw some deals to comply with competition rules.

Under the nationalisation deal, it must cap its market share of UK retail deposit balances at 1.5 per cent.

Despite its nationalisation Bradford & Bingley savers don't get the same guarantee, as its savers have been adopted by Abbey.

POST OFFICE

The Irish government's decision to guarantee 100 per cent of deposits savings in Irish bank accounts for the next two years benefits not only savers with those banks, but also those with the Post Office, whose bank accounts are provided by Bank of Ireland.

The move makes the Post Office, along with Anglo Irish Bank and Bank of Ireland, one of the cast-iron savings environments – unless the UK government follows in Ireland's steps by guaranteeing all accounts.

GOLD

Demand for gold has been high since the crisis began over a year ago, despite fluctuating prices.

Some of that demand has been for non-physical gold exposure, such as exchange traded funds that are linked to the gold price, but investors the world over are clamouring for physical gold ownership right now, despite its price volatility.

"Undoubtedly many will see gold as a safe haven investment in these volatile times. However it is not immune from volatile price swings itself," warned Parsons.

"Gold is not immune from timing issues and unlike other asset classes you are putting all your faith in capital growth as it is produces no yield."

A popular way of buying into the security and confidence of solid gold is now online – through websites such as www.bullionvault.com – which allows investors to buy gold bullion bars in various quantities at any time of the day or night and hold them in vaults in London, Zurich or New York.

GILTS

Gilts are bonds issued by the government, meaning they enjoy 100 per cent security.

They're also tax-efficient, with no capital gains tax on disposals.

The return on the redemption of a gilt is fixed, with the ten-year rate currently 4.5 per cent after demand pushed the yield down.

"The flight to quality has pushed their prices up and yields down, especially for short-dated gilts," said Parsons.

"Typically yields on short-dated gilts are now no more than 4 to 4.2 per cent, which for a higher rate tax payer gives a net yield of no more than 2 per cent. This is clearly someway below inflation and investors buying in at these levels risk losing money in real terms."

Gilts can be bought from a stock broker or through the government's Debt Management Office.