The recent collapse of Barings Bank in Britain has once again raised questions about the safety of financial institutions. After all, Barings was the oldest and one of the most respected banks in the UK, listing among its clients none other than the Queen herself.

Yet this bastion of stability and tradition was undone in a matter of weeks by a 28-year old trader playing with derivatives. And of course, Barings is not the first bank or savings institution to go belly-up. Remember the Savings & Loan crisis in the US during the late eighties and the Third World loan problems that, for a while, threatened giants such as Citicorp and Bank of America.

Does this mean that trusting your hard earned savings to the bank is risky? Of course not. However, it's worth keeping in mind that in this imperfect world, there is no such thing as 100 percent safety. So where is the safest place to put your money? Banks have always provided the answer to this need for most people, and in all but a very few cases, their faith has been well placed.

Certainly in Bermuda, the two retail banks are very conservatively managed and more than satisfy the accepted risk-asset ratio requirements.

Yet banks are not the real answer for the investor seeking the very highest degree of safety. Anyone wishing this level of security would need to look not to the bank but to an entity such as the US Government. US Treasury issues such as bills, notes and bonds provide not only maximum safety but also, ironically, superior yields to those offered by banks.

Not only is the US Government unlikely to go broke in the foreseeable future, but it powers of taxation provide it with a source of guaranteed revenues -- an avenue of safety that corporate entities do not enjoy. US Treasuries are available to residents of Bermuda and, in almost every case, are exempt from US taxation. Other governments, such as the UK and Canada offer even more attractive yields -- in the case of the latter, as high as nine percent.

However, instruments denominated in currencies other than US dollars also mean an element of foreign exchange risk.

But its worth keeping in mind that even investing in something as rock-solid as the US Treasury is not without some form of risk. Risk comes in many forms.

Other than any risk to the principal itself, there may be also "market risk''. This becomes a factor when a security is sold before maturity. When sold, its market value may be less than when purchased, thus reducing its overall return.

Of course, holding the security to maturity removes this risk. In the case of fixed income securities, there is also "interest rate risk''. For instance, a bond yielding 8% may be attractive now but in the event that prevailing rates rise sharply into double digits, being effectively locked in at 8% would result in a relative disadvantage when the same funds could bed earning a higher return elsewhere.

It was this scenario of rising interest rates that caused such bloodshed in the bond market last year. The double whammy here was that bondholders, seeing the attractiveness of their coupon rates diminishing with every rate hike, sought to sell their bonds only to find their market value substantially lower than a few months before. Recently however, the tide seems to have turned.

With rate increases possibly already having run their course, the bond market is settling down. In US Treasuries, the three month T-Bill is currently yielding around 6%, while 2 to 5 year notes are yielding a fraction either side of the 7% mark. So the combination of safety, yield and liquidity is a very attractive one.

However, even with the higher safety, liquidity and returns offered by US Treasuries, banks still offer one important advantage to retail customers.

Everyone needs a source of instantly accessible cash -- an emergency fund, if you like -- for major unforeseen expenses such as medical bills, house or car repairs, even unemployment. This is the purpose of a passbook account.

Even with the interest rate increases of the past year, passbook rates are still paltry. However, for anyone seeking protection against the day to day ups and downs of life, a passbook account containing the equivalent of up to three months' salary is a necessary cushion. Over the beyond that however, for the investor seeking realistic returns coupled with highest possible safety, the answer lies not with banks, but with Uncle Sam.

Huw Williams is a stockbroker at Gulfstream Securities.