How safe are our savings?
How much of our money in the bank is safe?
That’s the question that thousands – perhaps millions – of people are asking. We have come to expect that we can put £100 in to our bank and take it out again whenever we want. But with dozens of banks being rescued just before they go bust – and the odd one actually failing – people are naturally concerned and want to know how much of their money is safe.
The strict answer in the UK is £35,000 – the limit per person per bank that is guaranteed through the Financial Services Compensation Scheme. But the true answer, it is becoming clear, is all of it.
A year ago no depositor lost a penny in Northern Rock. Last Saturday Bradford & Bingley was declared in default – effectively bust. But all savings have been protected. The £4 billion cost of covering the amounts that were not within the compensation scheme was met by the Treasury.
Just this week the Prime Minister said the Government "will take whatever action is necessary to ensure the continued stability of the system to the benefit of families and businesses and their security right across the country". Hard to see what that means except he will guarantee all the money saved in banks. Yesterday the Irish Government made just that promise until September 2010. So why didn’t Gordon Brown say that and have done with it?
It is not because of the cost. In the UK there is almost £1 trillion pounds in personal savings accounts in banks and building societies which is almost twice what the government spends in a year. So it seems a huge promise. But not every bank will fail. And even if one of the big banks did go under the cost would be only three to five times the cost of rescuing Bradford & Bingley. So it is affordable.
The real reason why the Government will not make such a promise is that the financial services industry does not want it. It fears that if people could earn 6% to 7% on their cash in the bank and all of it was 100% safe then no-one would risk it on a volatile stock market where dividends are lower than that and capital values have fallen back to the level they were at eleven years ago. And if no-one put their money in investment funds its huge earnings from fees and commission would disappear.
That’s why the limit will almost certainly be raised to only £50,000 next week, even though a year ago the Chancellor made clear in an interview with The Times that he was thinking of raising it to £100,000. And in the USA Congress is about to raise its limit to $250,000 (£140,000).
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