The whiff of panic over the collapse of Northern Rock, B&B, 
Icelandic banks and others may seem distant memories, yet questions still loom over worldwide bank solvency, so every sensible saver should ask "Are my savings safe?"
This is a regularly updated account-by-account savings safety-check up, showing what protection you have if the worst happens and how to maximise your savings.
The Five Facts Everyone Should Know
Before we get to the nitty-gritty, if you only remember five things about this, make it...
Every UK REGULATED account gets £50,000 protection.
All UK regulated current or savings accounts and cash ISAs in banks, building societies and credit unions are covered by the government-backed Financial Services Compensation Scheme (FSCS). So if the bank fails, you'd get back up to £50,000 per person per financial institution, usually within a couple of months.
Not all UK savings are UK regulated.
Most banks including foreign-owned ones like Spain's Santander are UK regulated. Yet a few EU-owned banks opt for a 'passport scheme' where you rely on protection primarily from their HOME government.
Shockingly this includes the Post Office Savings brand (actually part of Bank of Ireland & covered by Ireland not UK). Plus ING Direct, Anglo-Irish, Triodos & more. See foreign banks list for full details.
The amount's double in joint accounts.
Cash in joint accounts counts as half each, so together you've £100,000 protection.
If you've an individual account with the same bank, half the joint savings count for your total exposure and any amount over £50,000 isn't protected (for more info see the joint accounts protection below).
An institution is NOT the same as a bank.
The protection's per institution not account, so four accounts with one bank still only get £50,000. The definition of 'institution' depends on a bank's licence and giant banking conglomerates make it complex.
E.g. Halifax and Bank of Scotland (sister banks) accounts are only covered up to £50k combined. RBS and NatWest are also sisters but the £50k limits are SEPARATE. See What counts as a bank? tool.
Spread savings to keep 'em safe.
For perfect safety, save no more than £49,000 per institution (the extra £1,000 gives room for interest). Spreading can be worth it even if you've under £50,000; if your bank went bust the money may be inaccessible while you get it back. Using two accounts mitigates the risk.
For a full list of top accounts see best-buy savings guide, or for how to save safely inc. dealing with very big amounts see 100% safety guide.
What does the FSCS cover?
The Financial Services Compensation Scheme (FSCS) 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.
The main categories of protected savings are:
Bank and Building Society accounts.
All UK credit unions, bank or building society savings account, current accounts and small business accounts (with annual turnovers below £1 million) are covered to some degree by the FSCS.
Certain types of Guaranteed Equity Bonds, which count as 'deposit accounts' where the interest paid depends on the stockmarket's performance, may also count for 'savings' protection.-
Any cash saved within a Sipp Pension.
If you have a Self Invested Personal Pension and are keeping some of the money in cash savings there (as opposed to investment funds) then you get the full FSCS savings protection on that, separate to any investment protection (read full details).
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 linked banks table) -
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.
AM I PROTECTED IF MY INVESTMENT COMPANY GOES BUST?
This guides primarily about 'saving', if you put money in stocks and shares, funds, or pensions then that's a 'risk based 'investment' NOT savings, and a totally different FSCS protection applies...
Investor protection is about providers going bust not you losing money
The FSCS investment protection applies if you lose money due to the product provider of the investment going bust (e.g you've got a Shares ISA with a bank and the bank goes bust) not if the underlying investment goes bust.
In other words if you've got 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.
Yet in many cases if you're buying shares or funds through a company, e.g. some stockbrokers just sell you shares, the fact the stockbroker went bust wouldn't actually matter, you'd still own the shares so there'd be no compensation.
Investment protection varies with each product's structure. Always check, many limits changed on 1 Jan 2010, so if the company went bust before then different limits may apply.
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Investments funds.
If you've invested in an investment fund (e.g. through a discount broker), you'll get 100% of the first £50,000 back.
Pensions & Life Assurance.
Stakeholder pensions and money paid into life assurance products usually fall under the category of 'long-term insurance', meaning 90% of what's in them is protected. 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 £50,000 is covered.
.
AM I PROTECTED 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 the government-backed FSCS scheme kicks in.
There are two main ways in which it protects you.
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If you need to claim from a bust insurer
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..
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If it goes bust and you 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 will be refunded as compensation via the FSCS. To help explain, here's a quick example...
You paid for a year long policy in January and the insurer went bust in September. If the FSCS can't get the policy transferred elsewhere, then you will receive 4 months compensation 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, so you get 100% of the premium back. Non-compulsory policies (e.g. home, travel, payment protection) have cover 90% of the money paid.
What isn't covered - Saving Stamps, CLUBs, Points, HAMPERS & More
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.
How does the protection work?
All UK regulated deposits, which includes money saved and accumulated interest, in bank or building society savings products, are covered by the 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 get some of your money back, though it's likely you'll lose access to the cash while compensation is being dished out.
This applies to everyone, no matter their age (including children), or where they live - provided the bank is registered in the UK and crucially
"100% of the first £50,000 you have saved per financial institution is protected."
The biggest issues here are what counts as an institution and what's a UK regulated institution? (see later for both) but they're not the only ones... (click to open/close)
The rates Were different before october 2008
The amount has been changed twice, first on the back of Northern Rock and then Bradford & Bingley. If you're one of the very few who still have outstanding issues, the amount you get will depend on the time of the 'compensation trigger'..
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.
There is currently a consultation going on about changing the rates see FSCS compensation limits story
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.
That means it is possible 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 threshold includes interest too.
The protection applies both to the amount you saved and any interest that would've accured on the day it went bust.
That means if the interest pushes you over the £50,000 limit then any amount above it isn't covered. So you may want to put a littlle under £50,000 in if you're spreading for safety.
debts can be subtracted from your savings.
A piece of FSCS rules minutiae dictates that if you have debts, such as a mortgage, loan or credit card with a bank you also have savings with, any outstanding debts will be subtracted from the savings. For example if you've £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; actually 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). It also means you may not be paying off the cheapest debts first.
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 won't be paid out instantly.
If, in the unlikely event of your bank collapsing, you want 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 AREN'T USUALLY 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.
I've heard this is going to increase?
Following a European Commission ruling on 12 July 2010, the £50,000 savings safety limit will almost certainly increase to €100,000 at the end of 2010. Based on exchange rates at the time of the announcement, that equates to £83,680 of protection, though the exact Sterling amount has yet to be set.
This hasn't been 100% confirmed yet by the UK government, the FSCS has told us that it should be a formality. Read the full MSE news story: Savings Safety Boost.
What counts as a 'financial institution'?
There's no easy definition, over the years many banks have merged or been taken over, blurring the lines as to what counts, technically it's all about the company's registration at the regulator, the FSA.
This can leave some strange results - for example.
Put money in the Halifax, Bank of Scotland and Birmingham Midshires, all part of the giant HBOS group and the protection limit is combined so you only get £50,000 for all together.
Put money in the Royal Bank of Scotland, NatWest and Ulster, which are all part of the giant RBS conglomerate, and you get separate £50,000 protection for each.
We checked the FSA registration number on each banks website. If an insititution isn't listed it does not mean it is not protected. Last full update May 2010
Alternatively see a full list of all banks
This chart 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!) are linked and share 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 colourblind, institutions which share an FSA registration are also number coded in brackets.
AA (1) |
Abbey (2) |
AK Bank (P) |
Aldermore (14) |
Alliance & Leicester (2 - from May) |
Allied Irish |
Anglo Irish (P) |
Asda (2) |
Bank of Baroda |
Bank of Cyprus (P) |
Bank of Ireland (4) (P) |
Bank of Scotland (1) |
Barclays (10) |
Barnsley BS (12) (See note) |
Birmingham Midshires (1) |
BMW Savings (5) |
Bradford & Bingley (2) |
Britannia(See note) |
Buckinghamshire BS |
Cahoot (2) |
Cambridge BS |
Capital One/Castle (13) |
Cater Allen |
Chelsea BS (12) (See note) |
Cheltenham & Gloucester (6) |
Chesham BS |
Cheshire BS (15) (See Note) |
Citibank |
Close Brothers |
Clydesdale Bank (7) |
Coutts |
Coventry BS (16) (See Note) |
Credit Unions (all separate) |
Cumberland BS |
Darlington BS |
Derbyshire BS (15) (See Note) |
Direct Line (8) |
Dunbar Bank |
Dunfermline BS (15) (See Note) |
Ecology BS |
Egg |
First Direct (9) |
First Trust |
Firstsave |
Furness BS |
Halifax(1) |
Hampshire Trust |
Hanley BS |
Harpenden BS |
Heritable Bank (11) |
Hinkley and Rugby BS |
HSBC (9) |
Icesave (P) |
ICICI |
ING Direct (11) (P) |
Intelligent Finance (1) |
Investec |
Ipswich BS |
Julian Hodge Bank |
Kaupthing Edge (11) (P) |
Kent Reliance BS |
Leeds BS |
Leek BS |
Liverpool Victoria |
Lloyds TSB (6) |
London Scottish Bank |
Loughborough BS |
Manchester BS |
Mansfield BS |
Market Harborough BS |
Marks and Spencer |
Marsden BS |
Melton Mowbray BS |
Monmouthshire BS |
National Counties BS |
Nationwide (15) (See Note) |
Natwest (separate to RBS) |
Newbury BS |
Newcastle BS (5) |
Northern Bank |
Northern Rock |
Norwich & Peterborough BS |
Nottingham BS |
Post Office (4) (P) |
Principality BS |
Progressive BS |
Punjab National Bank |
Raphaels Bank |
Rothschild |
Royal Bank of Scotland (8) |
Ruffler Bank (14) |
Saffron BS |
Saga (1) |
Sainsburys |
Santander (2) |
Scarb'gh BS (13) (See note) |
Scottish BS |
Scottish Widows Bank |
Skipton BS (13) (See note) |
Smile (3) (See note) |
Standard Life (10) |
State Bank of India |
Stroud & Swindon (16) (See Note) |
Teachers BS |
Tesco |
The Co-op (3) (See note) |
Tipton & Coseley BS |
Triodos (P) |
Ulster Bank |
United National Bank |
United Trust |
Vernon BS |
Virgin Money (8) |
West Bromwich |
Whiteaway Laidlaw |
Woolwich (10) |
Yorkshire Bank (7) |
Yorkshire BS (12) (See note) |
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. (P) These European-owned UK banks are protected very differently; read Passport scheme. |
What about bank takeovers?
If you banks been taken over your exact protection can depend on the date you opened a savings account. Here's a merger by merger guide.
Halifax Bank of Scotland and Lloyds TSB
After Halifax Bank of Scotland (HBOS) got into trouble in autumn 2008, Lloyds TSB came in to take it over, and in January 2009 it was confirmed that their FSCS licences will remain unchanged.
That means there are two separate institutions, so if you've savings in both, they"re covered up to £50,000 each.
Yet do note within the wider group the constituent parts of HBOS (Halifax, Birmingham Midshires, Intelligent Finance, The AA & more) only count as one institution, as do Lloyds and Cheltenham & Gloucester, so multiple accounts with these get just £50,000 cover.
Abbey, Alliance & Leicester and Bradford & Bingley
The giant Spanish bank Santander owns both Abbey and Alliance & Leicester and the savings business of Bradford & Bingley & Asda.
It's now gone the whole hog, and from May 2010 these banks now share one lot of £50,000 protection. So if you have more than £50,000 saved between Santander, A&L, B&B, Asda or Cahoot, then the excess isn't covered (Santander says this affects 10,000 savers).
It's also said that if any customers with more than £50,000 saved with the institution in total wants to withdraw cash, they will be able to even if the money is in fixed rate, no access accounts. Read the full Santander safety withdrawal news.
Nationwide, Derbyshire BS, Cheshire BS, Dunfermline BS
Big building society Nationwide has snapped up three smaller ones, Derbyshire, Cheshire and Dunfermline. Your level of protection depends on when you FIRST put savings into any of the institutions.
Prior to either merger date (1 Dec 08 for Derbyshire BS, 5 Dec 08 for Cheshire BS, 30 March 09 for Dunfermline), if you had savings in more than one of the institutions, even just £1, then you will retain separate cover of £50,000 in each until 31 December 2010.
In theory, this means if you had any money saved with each of the building societies prior to the relevant merger date for each one, you could have up to a total cover limit of £200,000 across all four, until December 2010.
However, if you start saving in the institutions now, you only get one lot of £50,000 cover across all the accounts.
Yorkshire, Chelsea & Barnsley BS
The two northern building societies (Yorkshire and Barnsley) merged on 31 December 2008. If you had savings in each before then you retain two lots of £50,000 protection (£100,000 in total), until December 2010. After that and otherwise you'll just get £50,000 across the two institutions.
On 2 December 2009, it was also announced that Yorkshire would merge with Chelsea BS, and it was completed in 18 March 2010. If you've savings in any of the three before the final merger date, you'll benefit from the separate protection until December 2010.
Skipton/Scarborough BS
The two building societies (Skipton and Scarborough) merged on 28 March 2009. If you had savings in each before then you retain two lots of £50,000 protection (£100,000 in total), until December 2010. After that and otherwise, you'll just get £50,000 across the two institutions.
The Co-op & Britannia
These two merged on 1 August 2009. If you had savings in each before then you retain two lots of £50,000 protection (£100,000 in total), until December 2010. After that and otherwise, you'll just get £50,000 across the two institutions.
Coventry BS and Stroud & Swindon BS
These two are planning to merge on 1 September 2010. If you have savings in each before then you retain two lots of £50,000 protection (£100,000 in total), until December 2010. After that and otherwise, you'll just get £50,000 across the two institutions.
What about saving with foreign banks?
There are lots of overeseas owned banks operating in Britain, whether its Santander, ICICI or ING Direct. Providing they're not 'offshore' accounts (which are very different), it's usually irrelevant who their parent company is. They're UK regulated banks, so you get the same £50,000 per person protection.
Yet it's more than that' if a bank gets into trouble it is to be hoped the UK government would arrange a bailout so all your money's protected (though that of course isn't guarantee). This hasn't just happened with UK owned Northern Rock and Bradford & Bingley but also with Iceland owned but UK regulated Kaupthing Edge (see Icelandic Bank Collapse info).
Where possible, always keep your cash within the £50,000 limit, as it's an aim but not a promise to bail out banks that fail, giving slightly less surety, especially with non European banks.
Some European banks may not be UK protected...
It is possible for a bank to be operating in the UK, with the regulators, the FSA's full approval, yet you do not get the full £50,000 protection. It's not banks owned by far flung countries like India or Kenya you need watch, but European owned banks
That's because banks from the European Economic Area are allowed to opt for a slightly different protection, called the Passport scheme, and if they do so, it means if they went bust, you'd have to claim money back from the bank's home country's compensation scheme.
Banks from outside Europe can't do this, and therefore if they operate here have full UK compensation.
Save with one of these and all your savings safety depends on the stability & solvency of a foreign government.
Of course some countries may be more financially stable than the UK, but do remember you're then reliant on a government you don't have a vote for, to actually choose to pay out.
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.
How the passport scheme works in practice depends on the exact level of compensation the parent country offers, compared to the UK's £50,000 - see passport scheme payouts for more.
Passport Scheme Payouts
Where the country's compensation is MORE than the UK's.
If the overseas scheme covers more than £50,000, then any banks covered by it must opt completely out of UK FSCS under EU law, meaning ALL the protection is provided by the foreign scheme.
Where the country's compensation is LESS than the UK's.
No countries that offer top UK accounts currently do this, but if they did it operates as follows. If the EEA country's compensation scheme is lower than £50,000 then...
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The home country provides compensation. The first amount would need to be claimed from that bank's home country's own compensation scheme, though this may logistically take place through the FSCS.
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The UK scheme tops up the rest. 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.
One final note, theoretically it's possible for a European bank to operate in the UK using only its home compensation scheme even if that's a lower thant the UK scheme, so you'd be eligible only for that amount.
In this situation, the foreign bank will not be FSA regulated, and no banks currently mentioned on this site work that way (and we don't currently know of any that are); however if you find any foreign banks not mentioned here, be vigilant; ask it how its compensation works.
Here's a list of the big non-UK savings banks and smaller top payers that have been in our best buys in the past few years
| Bank Name | Foreign Government's Protection Level |
|---|---|
€100,000 (Netherlands) | |
All deposits until Sep 2010 (Ireland) |
|
€100,000 (Cyprus) |
|
All deposits until Sep 2010 (Ireland) |
|
€100,000 (Netherlands) |
|
Now part of ING Direct - SEE ING DIRECT |
|
Part of Bank of Ireland- All deposits until Sep 2010 (Ireland) |
|
€100,000 (Netherlands) |
| Bank Name | Amount covered outside the UK |
|---|---|
- | |
|
Alliance & Leicester (Santander) |
- |
|
Allied Irish Bank (UK) (Allied Irish ) |
- |
|
Asda (Santander) |
- |
|
Bradford & Bingley (Santander) |
- |
|
Citibank (Citigroup) |
- |
|
Clydesdale Bank (National Australia) |
- |
|
Egg (Citibank) |
- |
Firstsave (First Bank Nigeria) |
- |
- |
|
Yorkshire Bank (National Australia) |
- |
Check out banks on the FSA website.
If you want to check out any bank's status yourself, simply follow these steps.
Go to the FSA Listings.
Click through to the bank listings on the FSA website, select the most recent date, and you'll get a huge PDF document.
Search for non EEA incorporation.
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.
Will my bank or building society go bust?
Take a trip back four years and this question would've been laughed out of school. Yet 2007 and 2008 saw such massive tremors - with Northern Rock, Bradford and Bingley, Icelandic banks and Wall Street giants Merrill Lynch and Goldman Sachs experiencing various degrees of catastrophe - that everyone started asking ' Am I safe?'
Things may have stablised since, but take nothing for granted. For the moment, things appear to have calmed, but take nothing for granted.
When banks have gone bust - bailouts more common than payout...
While it's right to focus on the FSCS compensation scheme, as that's guaranteed by the UK government, actually it is the last line of defence.
When most banks collapsed during the financial crisis, politicians stepped in with alternative remedies. With both Northern Rock and parts of Bradford & Bingley it was nationalisation, and similarly with Kaupthing Edge its savings business was transferred to ING Direct.
That could be seen as a huge statement of intent that it'll take extreme action to avoid a bank going to the wall. Though of course since then the government has changed, so we don't know how it'd work now - but likely similar things would be tried.
The only UK savings bank that went into liquidation was Icesave. That happened as unlike fellow Icelandic bank Kaupthing, its structure meant it was technically an Icelandic bank, not a UK one. Yet even then the government covered every penny, not just the £50,000 compensation limit.
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 first £50,000 is guaranteed so that needs to be the focus
How to assess a bank or building society's finances
Picking out a collapsing bank is an incredibly difficult thing to do; even the niche City specialists get it wrong, and it's certainly far from our speciality or the speciality of this site. That's why we focus on protection - which is far more important as you can be sure about it.
Worse still, predicting bank collapse could hasten or even cause a collapse, by creating a bank run where it wouldn't have happened otherwise (many suggest this happened to Northern Rock).
if you want to check the reported financial strength of a big public company check its credit rating , AAA being the best and then graded downwards.
Yet the sheer speed of change when there's 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.
It's also worth searching Google News for any stories about the company.
Is the FSCS big enough to cope?
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.
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!
The FSA documents 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. Two years 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 to save in 100% safety
There are a number of techniques for this, including some accounts that are 100% safe above and beyond the normal limits (see 100% safe savings below), but that can mean getting lower interest rates, which is why for most people the golden rule is...
Spread your savings...
Putting money into more than one account doesn't just mean more of your money is protected, it also follows the sensible old adage "don't have all your eggs in one basket" therefore mitigating risk.
The techniques you adopt depend on the amount of cash you want to save.
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Under £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. 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 use the tool above to check 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 so many accounts with £50,000 in each it becomes practically difficult to manage or you start sacrificing good interest rates to do so.
In this case, you may need to forget the £50,000 limit and just spready your cash into five or six different accounts. While you're not fully protected the act of spreading is at least mitigating a chunk of the risk.
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 Best Buy Savings Accounts article, so pick the highest payer then work your way down.
Plus any new best buys go in the weekly email.
100% safe ways to save
It's also possible to get 100% safety via using a variety of different techniques
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National Savings and Investments (NS&I)
All money in the state owned bank NS&I is fully backed up by the government, meaning money put in there is as near as damn it 100% safe.
While technically it doesn't have any more protection than any other institution, ultimately the protection most banks have is that if they go bust the government will bail them out. Here it's government owned, so as it'd take the government going bust for it to be in trouble it's as safe as it gets (if the UK went bust we'd all have bigger problems!)
Its most popular product is premium bonds, though the return on those aren't great (see the Premium Bond Probabililty Calculator) and you can only put £30,000 in there anyway.
It does have other products including normal savings account and cash ISAs, and at various times the rates are reasonable - good ones will always be in Top Savings guide. -
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 and once debts are gone, they're gone so its safe. See the Repay Debts with Savings guide.
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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 repaying 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
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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 may 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 cash with the government.
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Northern Rock is no longer 100% safe
From 2007 when it was taken over by the government until May 2010, all savings in Northern Rock were 100% safe, as like NS&I it was a state owned bank.
Now the bank is back on its own two feet, it only has the same protection as any other UK bank (£50,000) with the one exception of any fixed rate savings that were set up prior to 24 February 2010, which retain their fully government backed status until they mature.
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