With so much turmoil in the banking sector over the past few months, savers are feeling justifiably jittery about the safety of their hard-earned cash – but just how safe are their savings?
Many are nervous about putting their faith in savings institutions, having had their fingers burned by the collapse of the likes of Northern Rock and the Icelandic banks. And while things seemed to have settled down a little of late, there are no absolute guarantees that other banks won't go the same way.
Are my savings protected?
The good news is, if you have your savings with a UK bank authorised by financial watchdog, the Financial Services Authority (FSA), you will have protection under the UK's Financial Services Compensation Scheme (FSCS). This is the official safety net for customers of financial firms that go bust, and guarantees your savings up to a limit of £50,000 - or £100,000 for a joint account.
Don't keep all your eggs in one basket
When checking the safety of your cash, you need to note that the FSCS level of protection applies per person, per authorised institution - and not per account. This means that if you have more than £50,000 with any one bank, you need to spread your money around between different providers.
You also need to beware that some institutions offer accounts under a number of brand names or subsidiaries which are all trading arms of the same authorised institution. If there is a single registration for the entire group, your compensation is limited to a total of £50,000 protection across all of its brands.
Some examples
HBOS, for example, operates savings accounts under the Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance brands. However, all HBOS brands operate under a single FSA authorisation, so if you have £30,000 savings with the Halifax and £30,000 with Intelligent Finance, only £50,000 of the £60,000 total would be guaranteed.
In contrast, the UK banks owned by Santander are operating under two authorisations - one covers Abbey and Bradford & Bingley (B&B), and the other covers Alliance & Leicester (A&L). This means savers are covered for up to £50,000 across Abbey and B&B, and are also covered for a further £50,000 with A&L - but be warned that this could change from the middle of next year.
What about overseas banks?
Many of the UK registered banks are owned by overseas banks: Abbey, A&L and B&B, for example, are all owned by Spanish-based bank Santander, while both Clydesdale bank and Yorkshire bank are owned by the National Australian Banking Corporation.
While many overseas banks that offer products to British savers - such as Santander - are also registered with the FSA, you do need to check this, as some European banks operate a “passport” system whereby savers have to claim first from that country's compensation scheme, and then claim a top-up from the FSCS. For more information, go to the FSA website.
It's also worth noting that a number of Irish banks - such as Anglo Irish and the Bank of Ireland, which provides the Post Office savings products - operate in the UK savings market, but are not covered by the FSCS. They are covered, instead, by the Irish Deposit Protection Scheme under which the Irish Government has said it will guarantee all money held with Irish banks until September 2010.
Where can I get complete cover?
If you are looking for total protection for your savings, the Government-backed National Savings & Investments (NS&I) and Northern Rock both offer 100% security. You will, however, have to pay a price for this protection as their savings rates are not among the most competitive.
Don't be deterred from saving
While you may feel unsure about squirreling away your money with a bank, there's no need to resort to stashing your cash under the mattress - simply ensure that if you have more than £50,000 in savings, you spread it around.
