Money Mensch: How to ensure your savings are... safe
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Are your savings safe? Well, more than they were last year anyway. Then, the government only guaranteed £50,000 per person per institution. Now it is £85,000. Yet do not think: 'I'm fine then', as you could be less covered than you think.
I want to give you a savings safety makeover, based on the new rules. On December 31, the UK was brought into line with Europe, where the limit is €100,000 - £85,000 at the time. This amount should remain the same unless there are massive exchange-rate changes.
Before Northern Rock, Merrill Lynch, the Icelandic banks and others, 'savings safety' was something barely thought of. It is now an important question for anyone with an account. Yet solvency is a nightmare to judge, so my focus is always on how much protection you have got. Here's a Q&A:
● Is it safer under the mattress?
Absolutely not. Even the best home insurance policies will only pay out for £1,000 of cash if you get burgled. If you put it in a savings account, the government-backed Financial Services Compensation Scheme (FSCS) will, in most cases, will compensate you up to £85,000.
● Are all savings schemes protected?
No. It has to be a fully UK-regulated financial institution, which primarily means banks, building societies and credit unions. That means supermarket savings schemes and many others don't have this crucial guarantee. There may be trade bodies promising that they will give you cash back, but that is not close to the surety of government backing.
● Is it per account or per bank?
Neither. It is 'per institution', not 'per bank' and there is no common sense rule. It is all about each bank's licence with the Financial Services Authority. 'Sister' banks, Halifax and Bank of Scotland share a licence, so no matter how many accounts and how much money you have with these two, only the first £85,000 is protected. Yet other 'sister' banks, NatWest and RBS, have separate licences, meaning up to £85,000 with each of them would be protected. To see who your bank is linked with go to www.moneysavingexpert.com/safesavings
● Am I safe with money in a foreign bank?
This is where it gets tricky. To be protected by the UK government, the bank needs to be a fully UK-regulated bank. Yet some EU banks are allowed to rely on their home country's protection rather than the UK's. For example, ING Direct depends on the Dutch government to pay out, while Anglo Irish savers rely on the Irish scheme. That means in the relatively unlikely event they went bust, you would be relying on a government you don't vote for to pay out.
Do not think all foreign banks are not safe. Many do have the full regulation. Indian-owned banks like ICICI or Nigeria's First Save needed full UK protection just to open here, as they are non EU. And EU banks such as Santander also choose to have the full UK scheme.
Also do not always think 'foreign' is obvious. Until November last year, even Post Office Savings didn't have full UK backing as it was part of the Bank of Ireland (that's now changed and it is fully UK guaranteed). A full list of foreign banks is at www.moneysavingexpert.com/foreignsavings
● What about money in merged building societies?
This has all just changed. Until this year, money you had in some building societies before they merged, like Nationwide, Derbyshire, Cheshire and Dunfermline, were covered up to £50,000 in each. Yet now they have just one shared £85,000 protection between them.
The same's true of other groups: Yorkshire, Chelsea and Barnsley; Skipton and Scarbororgh; the Co-op and Britannia; and, finally, Coventry and Stroud & Swindon.
● How to keep your cash 100 per cent safe?
Previously I have suggested savers spread cash between different protected institutions, as even if you have got less than the limit, if a bank went bust you would be without access to your cash for a time.
Now the Financial Services Compensation Scheme says it would aim to make payments within seven calendar days of a bank or building society failing, and the remainder within 20 working days.
Yet the golden rule for those with big savings is still to spread each £85,000 around different institutions, to ensure 100 per cent protection.
The new cap means you will need fewer accounts to do this. If you have £160,000, you only need accounts with two institutions to be safe, rather than the four accounts you would have needed under the old limit of £50,000.
This is good news. Fewer accounts mean you can better focus your money on where it earns you more interest. After all, while protection is important, the biggest problem most savers face these days is the historically low 0.5 per cent base rate.
Interest rates are a pittance, but with hard work it is possible to get nearly three per cent in a basic savings accounts or a cash Isa if you are prepared to lock your money away for some time. Full details at www.moneysavingexpert.com/topsavings