Money mensch: How to save your savings
Everyone, urgently review your savings! Sadly we must now consider the ‘risks' of saving: once it only applied to investing. Yet for the first time we've seen the Financial Services Compensation Scheme activated (for Icesave), so it is crucial everyone checks their savings.
What's happened so far?
The Chancellor has repeatedly said he will do all he can to protect UK savers. We've seen it with Northern Rock, Bradford & Bingley and, last month, we saw it with Icelandic institutions Icesave and Kaupthing Edge.
With Icesave, no rescue was possible as it was an Icelandic bank, so sadly it's a case of claiming all your money back, though any Cash ISA status will be protected. Icesave customers should have received the first of two emails from the government, explaining how to claim. If you haven't then call the FSCS's Icesave hotline on 0845 7300 131.
Yet Kaupthing Edge, while Iceland owned, is a UK bank. This is why the Government stepped in and transferred it over to giant Dutch bank ING Direct so people now have their savings, not in Iceland, but in the Netherlands.
The way this is structured means in the unlikely event ING went bust, the compensation would come from the Dutch Government, which would give up to €100,000 per person (about £80,000) back. Yet it's worth noting that it's the world's largest direct savings provider and we must assume that Alistair Darling and his team did their homework and checked out the institution beforehand.
What protection do I have if my bank goes bust?
The secondary level of protection is the Financial Services Compensation Scheme. It protects the first £50,000 you have saved per financial institution; it was raised from £35,000 at the start of October.
Yet if the Government is going to bail out every bank, why do we need the compensation scheme? Is there any point in spreading your savings if you've got more than £50,000?
The answer to that question is yes. The only guarantee is the £50,000 per person per institution, so if you've more, spread it around.
It's also worth spreading smaller savings. While your money's protected under £50,000, any compensation payouts aren't instant. By spreading money, if one went bust, you could still access some cash.
This can get difficult for people who have sold property worth hundreds of thousands, because there just aren't enough places to spread it around.
They will be in the minority though, so the question is, "What if I have just sold my house and want to invest my £300,000 until I find another place to buy?"
If you are looking for a safe haven for that kind of money, there are more than six institutions around that will pay more than six per cent interest, so you've total safety and a decent rate. Though following the unprecedented 1.5% base rate cut last week, such high rates are likely to start disappearing soon.
Yet do check how banks are linked. For example, Halifax and Bank of Scotland count as the same institution, though confusingly RBS and Natwest, while part of the same group are separate.
What happens to the protection for joint accounts?
It is often said the amount of compensation is doubled in joint accounts, but it's not always that simple.
As an example, imagine Steve has £90,000 in a joint account with his wife Sally, plus £10,000 in a separate account with the same bank.
Half the joint account money, £45,000, is Steve's and, added to his separate savings, that's £55,000. This means, if the bank went bust, £5,000 of it wouldn't be covered by the FSCS. Yet if all the money had been in the joint account, or they'd saved £50,000 separately each, it would all be protected.
Which bank is safe?
Following the spate of great British and Scottish banks under threat in the past month, it's impossible to second-guess the markets and say bank X is safe, and will never have problems. That's why I focus on the protection, not the underlying solvency of any bank.
This leaves one final question: what would happen if the Government ran out of money to compensate us?
Frankly if that happened, we'd all have bigger things to worry about than our savings.