Are your savings safe?

Bank collapse was once easy to dismiss, then the credit crunch bit, global market turmoil hit, and logic was turned upside down. In the UK alone, we've seen the bail out of Northern Rock, Bradford & Bingley, Kaupthing and the need to compensate Icesave savers. Add in Farepak and every sensible saver should ask, "is my money safe?"

This is a full savings safety-check up and Q&A, showing you how to ensure you're protected, maximise your safe savings, and the pitfalls to avoid.

What's protected? Is it every type of savings?

A. No! There is a statutory scheme called the Financial Services Compensation Scheme (FSCS), but it only applies to organisations regulated by the Financial Services Authority (FSA). This was the big problem with the Christmas Savings Scheme Farepak, as it had no protection whatsoever; when it went bust the money was gone.

As will be explained in more detail later, the FSCS covers the first £50,000 per person, per institution. The main categories of protected savings are:

• Bank and Building Society accounts.

  If you want real safety the answer is a Bank or Building Society savings account, current account, small business account (with annual turnovers below £1 million) or credit union, but not savings stamps or hamper schemes. Specifically this is any UK registered bank (see later for how this impacts foreign banks' UK subsidiaries).

• Any cash ISA (or Toisa).

  These are simply a form of tax free savings account so they have the same protection. If you have a Cash ISA or had one of its forerunners, the Tessa Only ISA (Toisa), then you get exactly the same FSCS protection as in a savings account.
  

Investing is different.

It's important to understand, we're talking about ‘saving’ not ‘investing’. If you put money in stocks and shares or funds that invest in them, including pension funds, then you’ve got a “risk based” investment NOT savings, and a totally different FSCS protection applies.

It's very important to understand that this protection with investments applies if you lose money due to the product provider of the investment going bust (e.g a bank offering a Shares ISA). Yet if the underlying investment goes bust, i.e. you have shares in a company and it goes kaput, or you've bought a fund and it performs poorly, then you’ve no protection as that’s the nature of investing.

However sometimes you’re just buying shares or funds through a company, e.g. some stockbrokers just sell you shares, so if the stockbroker went bust, you’d still have the shares. In that case, as you wouldn’t be impacted at all, there’d be no compensation.

Investment FSCS protection is very complex, and can vary with each product's structure. Always check with your provider.

• Investments.
  
  If you've invested in an investment fund (e.g. through a discount broker), you'll get the first £30,000 back, plus 90% of the next £20,000 (a total of £48,000).
  
  
• Pensions & Life Assurance.
  
  Stakeholder pensions and money paid into life assurance products usually fall under the category of 'long-term insurance', meaning the first £2,000 is fully covered, then 90% of everything else in them. This is the same even if your stakeholder pension is held in 'cash funds'.
  
  
• Self Invested Personal Pensions (SIPPs).
  
  A Sipp is a completely DIY pension. which gives you complete control of your pension pot – for better or worse! The protection your cash gets depends on how you decide to use it. But importantly, in general the cash is ringfenced from the Sipp provider, meaning if IT goes bust, your money is safe.
  
  If you choose to invest in stockmarket funds or other investment vehicles, 100% of the first £30,000 is covered plus 90% of the next £20,000 (a total of £48,000). It's also possible to hold the money as cash within the Sipp; here you are covered under the standard £50,000 per person per institution. Sipp providers will tell you which banks the cash is held in, so you can check if it's linked to any others you have savings with (See Institutional links table).
  
  

What if my insurance company goes bust?

If you take out home, car, travel or even PPI loan insurance, and the provider goes into default, then FSCS cover also kicks in. There are two main ways in which it protects you.

• If you need to claim when a company’s gone bust

  The FSCS's main objective is to 'maintain continuity'. This means if your insurer goes bust, it will try and find another provider to take over your policy, or issue a substitute policy. However, if you have any ongoing claims, or need to make a claim before a new insurer is found, the FSCS should ensure these are covered..

• • If it goes bust and you’ve paid upfront

  If you’ve paid for cover for a year, but the company goes bust after a month or two, then you would lose out.  To protect against that, if the FSCS can't transfer your policy to another provider, you'll be given a period of time to take out alternative insurance, and any money you've already paid as a premium will be refunded as compensation via the FSCS. To help explain, here's a quick example...

  You took out a 12 month insurance policy on January 1st, and paid in full upfront. If the insurer goes bust on September 1st, and the FSCS can't get the policy transferred, then you will receive compensation worth 4 months of the original cost.

  The limits of the compensation depend on whether the policy is compulsory or not. Compensation for policies like third party car insurance, which you are required by law to have, are unlimited, meaning you get 100% of the premium back. Otherwise, non-compulsory insurance policies (e.g. home, travel, payment protection) have a coverage of 100% of the first £2,000, then 90% of the rest.

What isn’t covered?

The answer is pretty much everything else. If you’ve a savings scheme for a hamper or Christmas club, got money in Paypal, cash stored up with a cashback site or points in a loyalty card scheme, then you may be protected by an industry scheme but not the government scheme.

It’s also worth being aware that if you’re ordering or buying goods where you don’t receive them immediately, such as as a kitchen, flights, computer, then the purchases aren’t covered either. Though there is a way to protect yourself for free, see the Is my Spending Safe? guide.

Will my bank/building society go bust?

A. Within a year, this has shifted from unthinkable, to unlikely, and now we’ve seen major banks need full scale rescues, nationalisations or actually go bust and trigger compensation payouts.

The focus of this guide is the FSCS compensation scheme, yet actually that should be seen as the last line of defence, politicians are stepping in with alternative remedies before it gets that far.

What's happened so far?

The nationalisation of both Northern Rock and parts of Bradford & Bingley, and urgent transfer of Kaupthing Edge’s savings to ING Direct, can be seen as a huge government statement of intent that it'll take extreme action to avoid a bank going to the wall.

The only UK savings bank that has gone into liquidation, Icesave, happened as its structure meant it was technically an Icelandic bank, not a UK one. Yet even then the government says every penny, not just the £50,000 compensation limit, will be covered.

Even with this though, while the government intent seems to be for no one to lose any cash regardless of the amount they save, that ISN’T guaranteed. So it's important to think this way...

The UK govt. intent is to protect all savers, but only the £50,000 is guaranteed so that needs to be the focus

Which banks/building societies are most likely to go?

It's virtually impossible and certainly irresponsible to try and pick one. Part of the original Northern Rock problem was one of sentiment; the bank's actual problems weren't huge, until wild-fire rumour meant people lost confidence, the queues to withdraw started, others saw them and panic ensued.

Many people made silly decisions, such as withdrawing money from cash ISAs which were protected, and losing their tax-free status. The knock on effect was a run on the bank, and from that moment it was doomed.

There've been many rumours over the last year, some turned out to be true, many were nonsense. Picking out a collapsing bank is an incredibly difficult thing to do; even the niche City specialists don't know, and it's certainly far from my own speciality or the speciality of this site. Worse still, by doing so it could hasten or even cause a collapse, by creating a bank run where it wouldn't have happened otherwise.

Some of those which have been in trouble, like Merrill Lynch and Goldman Sachs, were once thought of as untouchable bastions of Wall Street. Therefore the best thing to do is rely on the protection not the rumour mill, as it's impossible to pick what's real.

Yet if you want to check the financial strength of a big public company check its credit rating

Long Term Credit Ratings

AAA: The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

AA: An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A: An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB: An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB: An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B: An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment.

C: A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.

Issue credit ratings are based, in varying degrees, on the following considerations:

• Likelihood of payment capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation
• Nature of and provisions of the obligation
• Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights

Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)

Source: Standard and Poor's

Close , AAA being the best and then graded downwards. Yet the sheer speed of change in the current financial contagion means even this isn’t a particularly reliable indicator. To check your bank’s strength use Standard & Poor's, though it's not overly simple to use; for a quick search try Fitch Ratings instead.

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What protection do I have if mine collapses?

A. All UK deposits, which includes money saved and accumulated interest, in bank or building society savings products, are covered by the Financial Services Compensation Scheme (FSCS).

This is an independent fund set up by UK financial bodies and regulated by the FSA, which promises that, in the event of a bank collapsing, you'd get some of your money back. This applies to everyone, no matter their age, including children. Remembering the exact amount you get is so crucial, it needs to be written large.

"The first £50,000 you have saved per financial institution is protected."

Let me run through some of the rules...

• This only applies to defaults after 7 Oct 08.

  The amount has been changed twice, on the back of Northern Rock and then Bradford & Bingley and the amount you get depends on what the limits were at the time of the 'compensation trigger'. Then again the only institutions that this applies to are very small, niche players.
  
  Defaults before 1 Oct 07. You'd get 100% of the first £2,000 of your cash back and 90% of the next £33,000 on top; so you'd get £31,700 of the first £35,000 back.
  
  Defaults between 1 Oct 07 and 6 Oct 08. If it went bust between 1 Oct 2007 and 6 Oct 2008, you'd get 100% of the first £35,000 back.
  
  All defaults after 7 Oct 08. Get the full £50,000 per person, per institution.
  

• The limit's doubled in a joint account.

  Money saved in an account registered in two names receives twice the protection; that's therefore the first £100,000. Don’t get too excited though, this isn’t an extra allowance; it’s simply the same protection as if each account holder had a separate account.

  In fact the best way to think about this is half the money in the account belongs to each person. An example should help...

  Sensible Steve has £100,000 in a joint account in RiskyBank with his girlfriend Saver Sally, plus £20,000 in a separate account of his own with the same bank.

  If RiskyBank went bankrupt, then if you consider half the joint account money, £50,000, is Steve's, then added to his separate savings that's £70,000. Which means he would lose £20,000.

  This means, if you work through it, it is possible that you lose out by having a joint account...

  Imagine Reckless Rick and his partner Rachel have a RiskyBank joint account with £90,000 in, plus Rachel has £10,000 in her own account with the same bank.

  Here, if the bank went bust, the full joint account balance would be covered; it is split out as £45,000 each, so Rachel only then has £5,000 worth of protection left to cover her separate account, leaving the other £5k at risk.

  So even though between them they've only £100,000 in savings, it's not all covered by the compensation scheme. They would've been better off simply having all the money in the joint account, or having £50,000 in separate accounts each.
  

• The protection is per institution NOT per account.

  This is a crucial point, the FSCS protection does not apply per account but per financial institution. In simple terms that means if you’ve got masses of savings all in one bank, but different accounts, then only the first £50,000 worth is protected.
  
  Yet it's sadly more complex than that, as sometimes different banks that are part of the same group count as just one institution. More information later in the what counts as an institution? table.

• The threshold includes interest too.

  The £50,000 limit applies to all the money in the account at the time the bank goes bust, meaning if you have accrued any interest, if it takes you over the threshold then it wouldn't be covered. So for total safety you should hedge and maybe put a maximum £49,500 or so in any one account

• Any debts with the same institution are subtracted from your savings.

  A piece of minutiae in the Financial Services Compensation Scheme rules dictates that if you have debts, such as a mortgage, loan or credit card with a bank that you also have savings with, any outstanding debts will be subtracted from the savings. For example if you have £20,000 in savings and a £15,000 loan, in the unlikely event that bank went bust you'll only get £5,000 compensation.

  While at first glance this seems awful; in actual fact you’d be no worse off; as you would no longer owe the debt, even if it were sold on to another institution (or if your debts are bigger than your savings the amount owed would be reduced); although the flexibility of spending the savings on something else has disappeared..

  The main negative is that the decision of whether to pay off your debts with savings has been taken out of your hands. While with most loans and credit cards this is a good thing (see the Should I Pay off my Debts? guide), if it’s mortgage debt it's not always a good idea (see Should I Pay off my Mortgage? guide). If this worries you, it's best to have your savings in a separate financial institution to your mortgage.
  
  Another note here; the FSCS makes sure banks adhere to this system, but building societies are not bound by the same conditions. Most do operate in the way described here, but it's definitely worth double checking if you have both savings and debt with one building society.
  
  It's also worth being aware this situation would be complicated, if the debts and savings of a bank were separated (as happened with Bradford & Bingley) and it simply isn't clear how this would impact things.

• Protection wouldn't be paid out instantly.

  If in the unlikely event of your bank collapsing, you wanted to get money out straight away, it's unlikely to be possible. The best guess is it would take a few months for peoples' accounts to be processed, and the cash returned; though there are moves underway to set up systems that would make potential payouts quicker.

• Offshore accounts may not be covered.

  Any savings held offshore, i.e., particular types of savings account not any money held in a non UK bank, are usually regulated by the local financial authority, rather than the FSA. As the FSCS protection only applies to companies regulated with the FSA, if your savings are held offshore check with your lender where it is regulated. For example, the FSCS does not cover savings outside the EEA, or even in the Channel Islands or Isle of Man.

What counts as a 'financial institution'?

Sadly, it's a bit more complex than it first appears. The technical definition is that you get the FSCS protection for each company independently registered with the FSA. Yet over the years, many banks have merged or been taken over, blurring the lines over what actually constitutes a financial institution.

This means, bizarrely, that you only get one lot of £50,000 for the whole of HBOS, which is the combination of the Halifax, Bank of Scotland, Birmingham Midshires and others. Yet if you had money in the Royal Bank of Scotland, NatWest and Tesco, which are all part of the giant RBS banking conglomerate, you would be separately protected in each of them.

The 'What counts as a bank?' table.

The table below shows you which banks (not investment companies) are standalone and which are part of the same institution. Any banks shaded in the same colour (except white!) share the protection, so if you have money in a combination of linked banks you only get one lot of the FSCS safeguard. As an aid to the colour blind, institutions which share an FSA registration are also number coded in brackets.

AA (1)	Alliance & Leicester	Abbey (2)
AK Bank	Allied Irish	Anglo Irish
Asda (2)	Bank of Cyprus	Bank of Ireland (4)
Bank of Scotland(1)	Barclays (10)	Barnsley BS (B)
Birmingham Midshires (1)	BMW Savings (5)	Bradford & Bingley (2)
Britannia BS	Buckinghamshire BS	Cheltenham & Gloucester (6)
Cahoot (2)	Cambridge BS	Capital One
Cater Allen	Chelsea BS	Chesham BS
Cheshire BS (A)	Citibank	Clydesdale Bank (7)
Coutts	Coventry BS	Credit Unions (all are separate)
Cumberland BS	Derbyshire BS (A)	Direct Line (8)
Dunbar Bank	Dunfermline BS	Ecology BS
Egg	First Direct (9)	First Trust
Firstsave	Furness BS	Halifax(1)
Hanley BS	Harpenden BS	Heritable Bank (11)
Hinkley and Rugby BS	HSBC (9)	Icesave
ICICI	ING Direct (11)	Intelligent Finance (1)
Investec	Ipswich BS	Julian Hodge Bank
Kaupthing Edge (11)	Kent Reliance BS	Leeds BS
Leek BS	Liverpool Victoria	Lloyds TSB (6)
London Scottish Bank	Loughborough BS	Marks and Spencer
Manchester BS	Mansfield BS	Market Harborough BS
Marsden BS	Melton Mowbray BS	Monmouthshire BS
Norwich & Peterborough BS	National Counties BS	Nationwide (A)
Natwest (separate to RBS)	Newbury BS	Newcastle BS (5)
Northern Bank	Nottingham BS	Post Office (4)
Principality BS	Progressive BS	Raphael Bank
Royal Bank of Scotland (8)	Ruffler Bank	Saffron BS
Saga (1)	Sainsburys	Scarborough BS
Scottish BS	Scottish Widows	Skipton BS
Smile (3)	Standard Life	Stroud & Swindon BS
Teachers BS	Tesco	The Co-op (3)
Tridos	Ulster Bank	United Trust
Virgin Money (8)	West Bromwich	Whiteaway Laidlaw
Woolwich (10)	Yorkshire Bank (7)	Yorkshire BS (B)
Last Fully Updated: Sept 08. This table was compiled by checking the FSA registration number of each bank on their websites, and is based on the FSCS definition that each independently registered institution receives the £50,000 protection. If an insititution is not listed it does not mean it is not protected. (A) In Dec 2008, Nationwide, Cheshire BS and Derbyshire BS plan to become one FSA registered institution. (B) On 31 Dec 2008, Yorkshire BS and Barnsley BS plan to become one FSA registered institution.

What about HBOS/Lloyds and the other bank takeovers?

Banks merging and launching takeovers has caused the complicated situation explained in the table above. This also means we need to keep a close eye on ongoing takeovers and amalgamations of banks to see if the FSA registrations are affected.

• HBOS/Lloyds

  This big takeover deal's not yet fully finalised, so no decision's been taken yet, and won’t be until around the end of 2008. For now these two are separate institutions, so if you’ve savings in both, they’re covered up to £50,000 each. Yet do note the constituent parts of HBOS (Halifax, B'ham Midshires, Intelligent Finance, The AA & more) only count as one institution so multiple accounts with these get just £50,000 cover.

• Abbey, Alliance & Leicester and Bradford & Bingley

  The giant Spanish bank Santander has recently bought both Abbey and Alliance & Leicester and the savings business of Bradford & Bingley.

  The situation for Abbey & Alliance and Leicester, we've been told, is that there are 'no plans to change' either of their FSA registrations, meaning they’ll stay separate institutions and you’re protected up to £50,000 in each.

  As Bradford and Bingley's savings wing has been bought by Santander, it has been merged with the Abbey. That means only one lot of £50,000 protection applies if you have a B&B (or Asda) and an Abbey (or Cahoot) account.

• Nationwide/Derbyshire BS/Cheshire BS

  Big building society Nationwide has snapped up two smaller ones, Derbyshire and Cheshire. These mergers will be fully completed in December 2008 and the current plan is to move them all onto the same licence at that point, meaning savers will only get one lot of £50,000 protection between the three of them.

• Skipton/Scarborough BS

  North of England building society, The Skipton, is in the process of taking over Scarborough BS. The deal won't be finalised until February 2009, and until then they will retain seperate FSA licences, hence two lots of £50k protection.
  
  No decision has been taken on what happens after that yet, so watch this space, although my guess would be they will merge onto one licence, hence one lump of £50k protection.

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Is the same protection offered for foreign banks?

A. There are more banks than you think which are owned by non-UK companies, Abbey, Alliance & Leicester and Egg alongside the more recognised foreign names such as ICICI and First Bank of Nigeria.

Many non-UK banks offer competitive savings products to UK consumers; it's been a boon for savers, as interest rates have been pushed higher. Yet actually the way they’re registered here means many of them are covered in exactly the same way as UK banks by the compensation scheme, so you'd get the £50,000 protection in exactly the same way.

Yet compensation is the secondary level of protection.

It is to be hoped the UK government would arrange a bailout rather than allowing the compensation to be triggered. This hasn't just happened with Northern Rock and Bradford & Bingley but also with Kaupthing Edge, which while Icelandic owned, was a fully UK regulated subsidiary.

Even so, it's still worth keeping your cash within the £50,000 limit where possible, as it's an aim but not a promise to bail out banks that fail, so there is naturally slightly less surety, especially with non European banks.

There are many questions about Indian parent bank ICICI, though the UK subsidiary has the full £50,000 protection. We don’t review individual bank solvency, but read my blog about it, with links to relevant sites: ICICI: How Safe is it?.

The Passport Scheme... slightly less protection for some European banks.

However there are some European banks which don't count as UK subsidiaries, as they have opted for a slightly different protection, notably the Passport scheme below, and here not only does it become more difficult for the UK to step in, but the compensation comes from elsewhere too.

This 'passport scheme' allows some European banks to have some of the compensation covered by their home country and the rest by the FSCS. Banks from outside the European Economic Area can’t take part in this and must have the full FSCS compensation.

• Home country compensation. The first amount would need to be claimed from that bank's home country's own compensation scheme.

• UK Top up. Any amount not covered is topped up to £50,000 by the UK scheme. e.g. if the overseas scheme covered £20,000 the UK scheme would cover the remaining £30,000.

This means that if one of these banks went bust, some or all the money would have to come from the foreign compensation scheme, though it's likely you’d still claim through the UK compensation system. This means in the first place you are reliant on the foreign government.

This is what caused the problem with Icesave, after nationalising its parent bank, the Icelandic government signalled it was not going to honour this EEA agreement, and thus left UK savers in the cold, until the UK government stepped in.

Whether that can happen again is anyone's guess, most of the banks in the scheme come from bigger countries, and it's hoped they would back up their promises, and if not, it's hoped the UK government would step in.

What if the foreign protection is bigger than the UK’s?

If a bank that's part of the passport scheme is covered by a foreign compensation scheme with a threshold higher than the UK's, (e.g. Ireland guarantees ALL deposits until 2010; the Netherlands cover up to €100,000), then if it went bust, you are covered for the larger amount but by the foreign government not the UK.

For example, this means all savings in Post Office accounts (except its Child Trust Fund) are guaranteed by the Irish government. It's worth noting that if you have savings in a European bank that's currently fully covered by the FSCS, and it then decided to opt for the passport scheme, it would have to inform you of the change.

A few banks have much less protection.

One area deserves a theoretical warning though; it's possible for a European bank to operate in the UK only using its home compensation scheme. Depending on the amount covered under that scheme, your savings may be less protected than the £50,000 the UK's FSCS provides.

In this situation, the foreign bank will not be FSA regulated, and no banks currently mentioned on this site work that way; however if you find any foreign banks not mentioned here, be vigilant; ask it how its compensation works.

Check out banks on the FSA website.

To check out a bank's status, click through to the bank listings on the FSA website, select the most recent date, and you'll get a huge PDF document. All banks in the 'Banks incorporated in the United Kingdom' category are fully covered by the FSCS, while institutions listed under the catchy title of 'Banks incorporated outside the EEA authorised to accept deposits through a branch in the UK' only have their home compensation scheme, unless they are on the FSCS top up list.

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What about the Icelandic banks?

While safe savings worries are a worldwide issue, the Icelandic banking system and economy has been the worst hit. Both its big banks have been best buys for UK savers over recent years, and now they've come crashing down. If you had money in either, this is a vital rundown of what's happened.

Kaupthing Edge: Now part of ING Direct

Kaupthing Edge was a full UK regulated subsidiary of Icelandic bank Kaupthing, and had been the top paying savings account. On Wed 8 Oct, after the collapse of the other Icelandic Bank Landsbanki the UK government used its powers to transfer all Kaupthing savers' money to Dutch Bank ING Direct.

It did this to protect UK savers, though the Icelandic government has mooted it was this transfer that caused its parent Kaupthing itself to collapse. The UK government also took similar action for Heritable Bank (part of Landsbanki, which also owns Icesave) so it's now part of ING too.

In terms of operating this account, it's the same as normal, both deposits and withdrawals are possible (though there is a backlog) via the the Kaupthing Edge website, which you will now see has ING's logo at the bottom. ING has now cut the interest rate for Edge customers, meaning ex-Kaupthing savers are getting a 4.55% rate of interest (compare this to the Top Savings Accounts).

How will this money be protected?

Kaupthing used to have full UK registered protection, meaning if it went bust you'd get £50,000 per person back from the UK scheme. This has now changed to the same protection as ING Direct customers get.

This means in the event that ING Direct goes bust, 100% of the first €100,000 (around £78,000) will be guaranteed. However it's important to understand this is NOT protected by the UK scheme but by the Dutch Investor Protection Scheme, meaning it would have to be claimed from the Netherlands authorities.

Did you attempt to transfer cash out before it went bust?

A large number of MoneySavers are worried that savings they attempted to transfer from Kaupthing to other accounts before it went bust, either by BACS or CHAPS, now appears to be missing from both Kaupthing and the destination account. A good portion have now started filtering through, but not yet all of it. For full details read the forum thread and poll.

We have spoken to both the FSCS and APACS, the payments organisation, and both are very confident this money will be repatriated to your Kaupthing (now ING Direct) accounts. After a bit of wrangiling with ING, we've managed to get a dedicated hotline set up; any customers with outstanding transactions from early October should call 08451 31 32 34 and ask for the 'MSE Helpline' .

APACS also said that any charges for CHAPS transfers (usually around £20) are deducted from the money that is transferred, not actually charged on top as fees. Therefore when you're reunited with the money, you can expect it to be the full amount.

Icesave: Bank collapsed; FULL compensation due in November

The most important thing to note is that all Icesavers money will be paid back, and most of it, according to the authorities, during November.

Icesave, part of Icelandic institution Landsbanki, was declared in default on Tuesday 7 October and the Icelandic portion effectively nationalised (like Northern Rock was here), meaning savers would have to claim compensation to get their savings back.

Unlike Kaupthing Edge, it had opted for ‘passport exemption’ with the UK compensation scheme, meaning if it went bust, the first €20,000 should have been paid by the Icelandic compensation scheme, with the remainder of the £50,000 from the UK scheme.

However, due to the solvency of Iceland as a country, doubts arose about whether the Icelandic protection scheme had enough cash to pay back UK savers. On Wed 8 Oct, the Chancellor Alastair Darling said:

"All Icesave savers' money, not just up to £50,000, will be protected, including interest"

That's the headline, but the details are below.

• How do I get my money back?

  On Monday 3 November, the FSCS announced that the 'accelerated payout' process is finalised and ready to start. The aim is for payments to start hitting savers' nominated accounts in the second week of November.

  First E-mail: You should have received an email from the FSCS by Friday 7 November, detailing the payout process (read what was sent here). Watch out as it seems to be going to some peoples' Junk E-mail folders. If you don't get an email by this date, you can call the FSCS's Icesave hotline on 0845 7300 131.

  Second E-mail: Following that, a second email will guide you through getting the cash transferred to a nominated account. If you don't get the second email by 4 December, call the helpline on 0845 605 8050.

  In order to manage the flow of payments and keep security high, not everyone will get emails at the same time. Yet as it's said it hoped everyone will get their cash by the end of November, this should be within a week or two of the first e-mail.

  Payment: Paments have now started getting sent out by BACS (which take about 5 days), and the FSCS's intention is for the 'vast majority' to have been completed by the end of November.

  WARNING: Some people may take this as an opportunity to spam or thieve. These two emails are the ONLY communcation that the FSCS is currently planning to send to Icesavers. If you receive any phone calls or extra emails, particularly ones asking for bank details, they won't be from the FSCS, so be very careful.

  The Icesave website will be down for the next week while the process gets underway, so don't panic if you can't log in to your account.

  You can read the full statement about this, and see the latest announcements, on the FSCS Consumer page.

• Will my ISA stay tax-free?

  Yes. Once you go through the compensation process, you'll receive an ISA certificate by post within two weeks. As long as you deposit this with another ISA provider by 5 April 2009, those savings will remain tax-free. It'll effectively work like a standard Cash ISA Transfer.

• What will happen to fixed-term savings?

  If you had one of Icesave's Fixed Term accounts, meaning the cash was locked away for a fixed amount of time at a set interest rate, you have two options:

  Get the cash now. You can request the compensation be paid now, just like all instant access savers. You will receive 100% of your money back, plus interest up to 7 October, and will be free to do whatever you choose with the cash.

  Wait until the Fixed Term ends. As you had agreed a guaranteed interest rate for a set period, the government has decided to honour that, if you want it to. Instead of claiming cash back now via the electronic process, you can log-on to Icesave's website and tick the appropriate box. The rest of the compensation process will be done via post, and at the end of the fixed term, you'll receive back your original cash, plus ALL the interest earned over the fixed period.

• What if I don't have a nominated account?

  If you never set up a nominated withdrawal account with Icesave, or don't want to use the online process, there is a paper-based application process, though the FSCS says this will take longer than the electronic one.

• How much interest will I get?

  All interest that you had earned up until the day of default, 7 October, will be paid as part of the compensation, whether it had already been paid into your account or just accrued. It's unlikely you'll get interest for the time it takes to claim the money back.

For all the official details, read the full statement from the Treasury. All updates will appear here and be included in the free weekly email.

All bank safety updates go in the free weekly MoneySaving email

FAQS View Past Emails

Is the FSCS big enough to cope?

A.The FSCS doesn’t keep a pot of cash sitting ready and waiting. Instead, it has the power to operate a 'compulsory levy' on banks, insurers and others signed up to the scheme, as and when it needs the money.

The advantage of this is it can pull cash from more than just the affected sector (i.e. if an insurer went down, while other insurers must contribute first, above a set level banks would be asked too) so funds should be available.

In theory, this means should the worst happen and a bank goes out of business, the FSCS has the legal power to call in funds from major financial institutions to cover the compensation needed to repay the first £50,000 lost by every saver.

What if the FSCS didn’t have enough money?

The FSCS has a cap on how much cash it can levy per year from financial institutions; from 1 April 2008 the overall capacity was set at just over £4 billion. Yet in the FSA’s review document (page 77), it admits that £4 billion wouldn’t even cover the twenty-fifth biggest UK deposit taker, so it's nowhere near enough for the big banks!

Thankfully, FSA documents also confirm...

"5.51 The Government will therefore include provision in the forthcoming legislation to allow the National Loans Fund to lend to the FSCS. These loans will have to be repaid, with interest charged at appropriate market rates, out of future levies on the industry, as well as from the share of recoveries from the estate of the failed bank that accrue to the FSCS."

Which in a nutshell means if the fund didn’t have enough cash, the Government will lend it the money, and it will then try and get it back from the insolvent bank’s assets and by putting a levy on the banks for years to pay it back. This has since happened; the FSCS money that was used to help push through the takeovers of Bradford & Bingley and Kaupthing was borrowed from the government and will be paid back in future years.

This wasn’t always the case though. Less than a year ago it seemed there was no back up plan. The first we heard of the Government's willingness to back the scheme up was actually due to a TV programme... Find out more.

How do I ensure I get 100% safety?

A. The most important rule is to spread your cash around, doing that doesn't just mean more of your money is protected, it also follows the old fashioned "don't have all your eggs in one basket" rule.

The techniques you adopt depend on the amount of cash you want to save.

• Over £50,000. For those with bigger savings, in the unlikely event a bank or building society went bust, the golden rule is don’t put more than £50,000 in any one financial institution; thus spreading your savings around a number of accounts. This a perfectly sensible strategy; just check on the chart above to ensure that they genuinely are separate institutions.
  
  
• Very large amounts. For those with very large amounts of savings (for example a house sale) this could lead to lots of accounts, even if you've too much to stick to the £50,000 limit for each one, the general rule of not having all your eggs in one basket still works.
  
  
• Less than £50,000. If you've less than £50,000 there's no problem in terms of protection. Yet if a bank went bust and you were to have to claim compensation this takes time and meanwhile you wouldn't have access to any cash. So it is still worth considering having money split across more than one financial institution.
  

There are usually nine or ten very competitive accounts, meaning you can save well over £500,000 in perfect safety. To help, at least ten top accounts are included in the Top Paying Savings Accounts article, so pick the highest payer then work your way down. Plus any new best buys go in the weekly email.

It's also possible to get 100% safety on some accounts, though the rates are lower, see the 100% safe savings section below.

Other ways to keep your savings safe.

It’s easy to forget there are still some standard safe uses for savings that are risk free.

• Repay your debts.

  Most credit cards and loans cost a lot more in interest than you earn on your savings. So repay the debt with the savings and you’re quids in. See the Repay Debts with Savings guide.

• Overpay on your mortgage.

  Many mortgages let you pay off a bit a month, or even in big chunks. Paying off a mortgage, say at 6%, is a bit like earning that amount on savings after tax – as DECREASING your costs is similar to EARNING cash.

  Plus, in a tough mortgage market, the less you borrow compared to the house’s value, the better deals are available to you. So paying off now may lead to a better deal at remortgage time. Full info including a special calculator in the Should I Pay off my Mortgage? guide

Do any banks offer 100% safety?

A. Yes, two; simply because they're both currently owned by HM government! All savings in Northern Rock and National Savings & Investments are 100% guaranteed. This does mean, if you've a lot of cash (well over the £50,000 amount) and the safety factor worries you, to put a portion of your cash in there for ultra safety is a reasonable, cautious strategy. Yet as the rates don't tend to be that good, be aware that by hedging for safety you're sacrificing interest.

• National Savings and Investments (NS&I).

  NS&I has always been a state-owned financial institution, meaning the Government has fully backed up any money in it. Whilst premium bonds are its most popular product, the average returns on them are quite poor and represent rubbish value for money (read Premium Bonds: Are they worth it?); its Direct ISA and Index-linked Savings are much better payers.

• Northern Rock.

  Northern Rock was nationalised in February 2008 following its brush with the Credit CrunchThe Credit Crunch

  This is the name given to the current phenomena that banks and other big financial institutions are struggling to find money to borrow. As they can’t find money to borrow they’ve less to lend out, which means the cost of debt is increasing, and its availability is decreasing. In other words it’s getting more difficult and more expensive to borrow.

  
  Close Following that crisis, the Government stepped in to give a 100% guarantee on all ‘existing savings’ there, then extended it to new deposits too.

  This means anyone saving with Northern Rock, whether from before the crisis, since it, or even if you took your money out and now re-deposit it, will get back your whole balance, plus interest that you’re owed and any money that you subsequently deposit there in the future.

  The best rates available are 5.15% with its online E-Saver, or if you are willing to lock the cash away for a year, its Fixed Rate Bond pays 4.5%. However, one of the terms of its nationalisation says it can't hold more than 1.5% of all UK deposits, and previously all accounts were withdrawn because it breached this limit. If it happens again, we will update this section.

• Buy a tax certificate.

  For those who are self employed, one place to put money safely is to pay your tax early. You can do this by buying a tax-certificate and you earn taxable interest on it (see interest rates list). This system is best for those with larger tax bills, putting money aside that is likely to be due within the next year, by doing this you're effectively saving your cash with the government.

• Rely on the Irish?

  The Irish government has promised to protect all savers' money until 2010, and any UK accounts from Irish Banks operating the 'Passport' system such as Anglo-Irish, get this protection (see the passport table above for full details). On the plus side, many of these offer competitive rates.

  Yet remember this protection comes from a smaller European neighbour, and therefore you need to ask yourself how sure you are the Irish government can back it up, before relying on it the same way as UK protection.

Are limits likely to be increased?

A. On 7 October 2008, the regulator the Financial Services Authority, increased the compensation limit from £35,000 to £50,000. This was done earlier than expected due to the global financial crisis, yet it doesn't mean the consultation is over.

The jury is still out on whether the limit needs to be raised to a higher level; the current consultation round closes in January 2009 and a statement is due out sometime later in the year (see FSA compensation review).

This isn't the only thing left to be decided either. How the money from insolvent banks is dealt with, the questions of extra protection for those who have short term large amounts (e.g. money from house sales), a new way of dealing with the issue of separate licences within one banking group, and the entire regime of bank rescue should be part of the consultation.