This piece first appeared in Community Care on 6 November 2008
The text here may not be identical to the published text

Searching for a safe refuge

The recent failure of five banks selling savings accounts in the UK has caused fear among many savers. I get many emails from listeners and readers as well as friends and colleagues asking ‘are my savings safe?’

So far, in the UK, yes.

Savings up to £50,000 for each person in each bank or building society or credit union (I shall call them all ‘banks’ from now on) are covered by the Financial Services Compensation Scheme. That is paid for by other UK banks and is now underwritten by the Government. Joint accounts belong to two people so there is £100,000 cover on them. Only 2% of us have more than £50,000 in cash savings and so can sleep easy.

There is some evidence that those who do have more than the limit are splitting their money across several banks to get full protection. It is difficult to know which banks are truly separate. If you put money in Halifax and in Bank of Scotland for example you get just one £50,000 protection. The best source of information on links is at www.moneysavingexpert.com/savings/safe-savings

Foreign banks are normally covered by the £50,000 limit too. If they are based outside the European Economic Area (the EU plus Iceland, Liechtenstein and Norway) then they must be authorised here and are covered by the UK scheme and its £50,000 limit. Banks from countries based in the EEA are sometimes covered by our scheme. Others are covered by the scheme in their home country. Any claim is made first to that scheme and payment may be slow and in a foreign currency. The balance up to £50,000 is then paid by the UK scheme. Protection in the EEA is being raised to at least €50,000 (about £40,000) but many countries are raising it to twice that amount. The UK Government may follow in 2009.

All these limits may be a little academic as the UK government has made clear by its actions that it will guarantee savings up to any amount in a UK bank (Northern Rock, Bradford & Bingley) or a bank which sells accounts in the UK (Icesave, Heritable Bank, Kaupthing Edge).

The Isle of Man, Jersey and Guernsey are separate countries outside the UK and the EEA. They each have their own compensation scheme which may not be as good or as swift as the UK scheme and they are not underwritten by the UK government. Unless you are an ex-pat and cannot get a UK bank account there is little point in putting money offshore.

 


All material on these pages is © Paul Lewis 2008