IN the last year, we have seen Northern Rock nationalised, Alliance & Leicester sold, HBOS being forced into a merger with Lloyds TSB and Bradford & Bingley part-nationalised.

So we are left with the big players: Barclays, Royal Bank of Scotland, Standard Chartered, HSBC and Lloyds TSB. It is unthinkable that one of these big banks will need help – but it is possible. As I write (Tuesday), Royal Bank of Scotland is rumoured to have approached the UK Government for funding, which has resulted in the shares falling 35 per cent in a day. Contagion is growing, and the visceral effects are frightening.

Iceland has seen its second largest bank, Landsbanki, go bust. UK savers with deposits in Landsbanki’s subsidiary, IceSave, are not permitted to withdraw funds though savings up to £50,000 will be protected under the Financial Services Compensation Scheme. This limit to UK savers is in the face of blanket guarantees put in place by Germany, Greece and Ireland. I am a trustee of a charity and I see that we have significant cash on deposit; I am being asked by friends and family what they should do with their cash.

The answer is gilts – government stocks – effectively you are lending the government money so they are guaranteed by the government. For example, Treasury Stock 4.25 per cent 2011 is priced at just over par at £100.70 (at October 2). Although this means that you will lose 70p for every £100.70 invested, the net return per annum (after 40 per cent income tax) if held until the stock is repaid at £100, is 2.250 per cent. If you are prepared to invest longer term you could look at Treasury Stock 4.0 per cent 2016 priced at £98.59 (at October 2). This offers a net return per annum of 2.598 per cent if held until repaid in 2016.

Interest rates in the UK are forecast to fall to around 3.25 per cent in the last quarter of 2009, and even as low as 3 per cent so the yield on Gilts is looking attractive.

As Harold Wilson said, a week is a long time in politics. Let me tell you, a week is a lifetime in the financial markets.

WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek their own professional advice as to the suitability of the investments.