The panic over the collapse of Northern Rock, Bradford & Bingley, Icelandic banks and others may seem a distant memory, yet every sensible saver needs to remember the lessons and ask "Are my savings safe?"
This is an account-by-account savings safety check-up, which shows what protection you have if the worst happens. It also outlines what you need to do before the savings guarantee limit drops on 1 January 2016.
In this guide...
Seven facts everyone should know
Before we get to the nitty-gritty, if you only remember seven things about this, make it these:
Every UK-REGULATED account usually gets £85,000 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).
But this doesn't mean you'll get £85,000 for every account - the £85,000 is per financial institution. So if the bank fails, you'd get back up to £85,000 per person, per financial institution. The majority should get it within seven days.
You've a temporary £1 million protection after 'life events'
New rules introduced in July 2015 mean that savings of up to £1m may be protected for a six-month period if your savings provider goes bust.
The increase is to cover life events such as selling your home, inheritances, redundancy, and insurance or compensation payouts that could lead to you having a temporarily-high savings balance.
The extra cover will apply from the date on which the money is transferred into the account, or the date on which the depositor becomes entitled to the amount, whichever is later. You'll need to prove where the funds came from in the event of a claim - and be prepared to wait up to three months for any cash over £85,000 (£75,000 from 1 Jan 2016).
You can read more about what qualifies as a 'life event' on the FSCS website.
This change is a boon, because it allows you time to sort a plan for the cash. But, not only that, it also allows you to maximise savings by putting more cash into higher interest paying accounts than you'd otherwise be able to.
How does the £1 million limit change my savings strategy?
Imagine you sell a £600,000 home and intend to rebuy within half a year. What most have done in the past is put it in a mix of top savings accounts and big name banks to spread the savings to not go over the £85,000 with any bank.
But, this doesn't get as much interest as it could if it was all in the top account (or in just a couple of top accounts).
Read Martin's Do you really need to spread your savings? blog for more on how this works.
Not all UK savings are UK-regulated
Most banks, including foreign-owned ones such as 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.
This includes Triodos etc. See the 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 £170,000 protection (falling to £150,000 on 1 January 2016).
If you've an individual account with the same bank, half the joint savings count for your total exposure, and any amount over £85,000 isn't protected (£75,000 from 1 January 2016). 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 £85,000 (£75,000 from 1 January 2016). The definition of 'institution' depends on a bank's licence and giant banking conglomerates make it complex.
For example, sister banks Halifax and Bank of Scotland's accounts are only covered up to £85,000 combined (£75,000 from 1 January 2016). RBS and NatWest are also sisters, but their £85k limits (£75,000 from 1 January 2016) are SEPARATE. See the What Counts As A Bank? tool below.
Spread savings to keep 'em safe
For perfect safety, save no more than £83,000 per institution (the extra £2,000 gives room for interest). Spreading can be worth it even if you've under £85,000; if your bank went bust, the money could be inaccessible for a spell. Using two accounts mitigates the risk.
The limit's falling to £75,000 on 1 Jan - do you need to move savings?
The £85,000 limit was imposed in 2010 to chime with the rest of the EU, so everyone had €100,000 protection (or its equivalent) for savings accounts. The EU protection level has not changed. However, as the pound is currently strong against the euro, €100,000 protection is now equal to around £70,000.
UK regulators have a duty to review the protection limit every five years to ensure it's still similar to the rest of the EU. Because of this, from 1 January 2016 the limit's dropping to £75,000 to make sure it's still equivalent to the €100,000 limit.
If you're risk averse, it's worth moving the unprotected cash into other accounts so you'll never lose. But, there's a trade off between risk and convenience - especially for larger savers who might have to have tens of accounts to be fully protected. Read Martin's blog on whether it's worth splitting £85,000 pots when the new limit comes in.
What does the FSCS cover?
The Financial Services Compensation Scheme (FSCS) only applies to organisations regulated by the Financial Conduct Authority (FCA). This was the big problem with failed 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
Certain types of guaranteed equity bonds, 'deposit accounts' where the interest paid depends on the stock market'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 are holding your cash, so you can check if it's linked to any others you have savings with (see linked banks table below).
Any cash ISA
These are simply tax-free savings accounts, so they have the same FSCS protection as any other savings accounts. This includes the cash ISA's forerunner, the Tessa-Only ISA (Toisa). Plus the ISA money will retain its tax-free status if the institution it's held in goes bust.
Am I protected if my investment company goes bust?
This guide's primarily about 'saving'. If you put money in stocks and shares, funds, or a pension, then that's a 'risk-based investment', NOT savings. 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 - for example, if you've got a stocks & shares ISA with a bank, and the bank goes bust - and 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 - eg, 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 January 2010, so if the company went bust before then different limits may apply.
If you've put cash into an investment fund (eg, through a discount broker), you'll get 100% of the first £50,000 back.
Pensions and 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 stock market 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, life 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.
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 to 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 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 four 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 (eg, home, travel, life and PPI) have cover for 90% of the money paid.
What's not covered - saving stamps, clubs, loyalty points and more
If you've a savings scheme for a hamper or Christmas club, got money in PayPal, funds stored 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.
Also, if you're ordering or buying goods where you don't receive them immediately, such as a kitchen, flights or a computer, then those purchases aren't covered either. There is a way to protect yourself for free, though - see the Is My Spending Safe? guide.
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How does the protection work?
All UK-regulated deposits - including 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 FCA, 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, crucially:
100% of the first £85,000 you have saved, per financial institution, is protected (£75,000 from 1 January 2016).
The rates were different before December 2010
The amount has been changed three times. First on the back of Northern Rock, then Bradford & Bingley, then to bring the UK in line with the rest of Europe.
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 between 7 Oct 2008 and 30 Dec 2010: If your bank went bust between these dates, you'd get back the first £50,000 per person, per institution.
Defaults between 1 Oct 2007 and 6 Oct 2008: You'd get 100% of the first £35,000 back.
Defaults before 1 Oct 2007: 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.
The limit's doubled in a joint account
Money saved in an account registered in two names receives twice the protection; therefore that's the first £170,000 (£150,000 from 1 January 2016). 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 that half the money in the account belongs to each person. An example should help...
Sensible Steve has £170,000 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 (£85,000) is Steve's, then added to his separate savings that's £105,000. Therefore, he would lose £20,000.
That means it's possible you could lose out by having a joint account.
Imagine Reckless Rick and his partner Rachel have a RiskyBank joint account with £160,000 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; split at £80,000 each. So Rachel only has £5,000 of protection left to cover her own account, leaving the remaining £5k at risk.
So even though between them, they've only £170,000 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 £85,000 each in separate accounts.
The threshold includes interest as well
The protection applies both to the amount you saved and any interest that would've accrued on the day it went bust.
That means if the interest pushes you over the £85,000 limit, then any amount above it isn't covered. So you may want to put a little under £85,000 in (£75,000 from 1 January 2016).
Savings are separate from debts
If you have debts, such as a mortgage, loan or credit card with a bank that you also have savings with, these two things will be treated separately. So if the bank went bust, you'd receive compensation for savings from the FSCS, and still owe the bank the full amount of your debts.
This system has been in place since January 2011; previously, your savings were automatically subtracted from debts. Now you aren't forced to pay off debts that you wouldn't have had to under normal circumstances.
If you have savings in one institution which come to more than the FSCS limit of £85,000 (£75,000 from 1 January 2016), then anything over that is likely to be automatically deducted from your debts when administrators come into the bank - another good reason to adhere to the limits.
However, it's worth noting that if you have substantial savings, paying off most loans and credit cards is a good idea (see the Should I Pay Off My Debts? guide), though for mortgage debt it's not always the best choice (see Should I Pay off My Mortgage? guide).
Protection won't be paid out instantly
If, in the unlikely event of your bank collapsing, you want to get money out straight away, the chances have now improved. Since 2011, the FSCS has had a target of having paid the majority of claimants within seven days, and everyone by day 20. The compensation will be paid out automatically, so you won't need to make a claim.
This is, as yet, untested - although the only big payout in recent years, for savers in Icesave, went pretty smoothly. It's a strange scenario; no-one really wants this procedure to be tested, but until it is, we won't know how well the new system works.
Offshore accounts aren't usually covered
Any savings held offshore, ie, particular types of savings accounts, not any money held in a non-UK bank, are usually regulated by the local financial authority, rather than the FCA.
The FSCS protection only applies to companies regulated with the FCA, so if your savings are held offshore check with your lender where it is regulated. For example, the FSCS does not cover savings outside the European Economic Area (the EU plus Iceland, Norway and Liechtenstein), nor does it cover the Channel Islands or Isle of Man.
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 FCA.
This can leave some strange results - for example:
Put money in the Halifax, Bank of Scotland and BM Savings, all part of the same group, and the protection limit is combined. You'd only get £85,000 altogether (£75,000 from 1 January 2016).
Put money in the Royal Bank of Scotland, NatWest and Ulster, which are all part of the giant RBS conglomerate, and you get separate £85,000 protection for each of the three banks (£75,000 from 1 January 2016).
Which banks are linked?Find out if your bank shares its savings protection
See a full list of all banks
This chart shows you which banks and building societies (not investment companies) stand alone, and which are part of the same institution. Any banks/building societies which share a number code in brackets are linked AND share protection, so if you have money in a combination of linked banks/building societies you only get one lot of the FSCS safeguard. If a bank or building society doesn't have a number next to it, it means it has the full savings safety protection and doesn’t share it with any others.
Which savings providers count as one financial institution?
|AA (1)||Aldermore||Alliance & Leicester (2)|
|Allied Irish (17)||Al Rayan Bank (formerly known as Islamic Bank of Britain)||Anglo Irish/IBRC (P)|
|Asda Money||Aviva (1)||Bank of Baroda|
|Bank of China UK||Bank of Cyprus UK (19)||Bank of Ireland UK (4)|
|Bank of London & Middle East||Bank of Scotland (1)||Barclays (10)|
|Barnsley BS (12) (See note)||Bath BS||Beverley BS|
|BM Savings (1)||Britannia (3)||Buckinghamshire BS|
|Butterfield Bank||C.Hoare & Co||Cahoot (2)|
|Cambridge BS||Cambridge & Counties Bank||Castle Money|
|Cater Allen||Charter Savings Bank||Charity Bank|
|Chelsea BS (12)(See note)||Cheltenham & Gloucester (6)||Chorley & District BS|
|Church House Trust||Citibank||City of Derry BS|
|Close Savings (21)||Clydesdale Bank (7)||Coutts|
|Coventry BS (16) See Note||Credit unions (all separate)||Cumberland BS|
|Danske Bank||Darlington BS||Dudley BS|
|Dunbar Bank (21)||Earl Shilton BS||Ecology BS|
|Egg (12) (See note)||First Direct (9)||First Trust (17)|
|Firstsave||Furness BS||GE Capital Direct|
|Halifax (1)||Hampshire Trust||Hanley BS|
|Harpenden BS||Harrods Bank||Hinckley and Rugby BS|
|Holmesdale BS||HSBC (9)||ICICI Bank|
|ING Direct (10) (See note)||Intelligent Finance (1)||Investec|
|Ipswich BS||Julian Hodge Bank||Kent Reliance BS|
|Leeds BS||Leek BS||Liverpool Victoria|
|Lloyds (6)||London Scottish Bank||Loughborough BS|
|Manchester BS||Mansfield BS||Marfin Laiki Bank (P) (19)|
|Market Harborough BS||M &S Bank||Marsden BS|
|Melton Mowbray BS||Metro Bank||Monmouthshire BS|
|National Counties BS||Nationwide||NatWest (separate to RBS)|
|Newbury BS||Newcastle BS||Northern Rock (18)|
|Norwich & P'boro BS (12) (See note)||Nottingham BS (20)||Paragon Bank|
|Penrith BS||Post Office (4)||Principality BS|
|Progressive BS||Punjab National Bank||Raphaels Bank|
|Rothschild||Royal Bank of Scotland||Saffron BS|
|Saga (1)||Sainsbury's Bank||Santander (2)|
|Scarborough Investments (13)||Scottish BS||Scottish Widows Bank|
|Secure Trust Bank||Shawbrook Bank||Shepshed BS (20)|
|Skipton BS||Smile (3) See note||Stafford Railway BS|
|Standard Life (10)||State Bank of India||Stroud & Swindon (16) See note|
|Teachers BS||Tesco Bank||The Co-op (3) See note|
|Tipton & Coseley BS||Triodos (P)||TSB|
|Turkish Bank UK||Ulster Bank||United Bank UK|
|United Trust||Vanquis Bank||Vernon BS|
|Virgin Money (18)||Weatherby's Bank||Wesleyan Bank|
|West Bromwich||Woolwich (10) (See note)||Yorkshire Bank (7)|
|Yorkshire BS (12) See note||-||-|
|This table was compiled by checking the FCA registration number of each bank on their websites, and is based on the FSCS definition that each independently registered institution receives the £85,000 protection (£75,000 from 1 January 2016). 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.|
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What about bank takeovers?
If your bank's been taken over, your exact protection can depend on the date you opened a savings account. Here's a merger-by-merger guide:
Lloyds Banking Group, Halifax and TSB
After Halifax Bank of Scotland (HBOS) got into trouble in autumn 2008, Lloyds TSB took it over, but remained as two separate institutions, so if you've savings in both, they're covered up to £85,000 each (£75,000 from 1 January 2016).
In November 2013 some branches of Lloyds TSB in England and Wales, all branches in Scotland, and all Cheltenham & Gloucester branches, were formed into a new TSB business. The rest remained as Lloyds.
Bear in mind that within the wider group, the constituent parts of HBOS (Halifax, BM Savings, Intelligent Finance, the AA and more) only count as one institution, as do Lloyds and Cheltenham & Gloucester, so multiple accounts within these get just the £85,000 cover (£75,000 from 1 January 2016).
TSB has its own £85,000 FSCS safe savings guarantee (£75,000 from 1 January 2016), held under the TSB banking licence.
Santander (Alliance & Leicester and Bradford & Bingley)
The giant Spanish bank Santander also owns Alliance & Leicester, internet-based banking brand Cahoot and the savings business of Bradford & Bingley.
Since May 2010 these banks all share one £85,000 protection (£75,000 from 1 January 2016). So if you have more than £85,000 saved between Santander, A&L, B&B (both of which have been rebranded as Santander) or Cahoot, then the excess isn't covered.
Virgin Money and Northern Rock
In 2007 Northern Rock was taken over by the Government. Until May 2010 all savings in it were 100% safe as it was a state-owned bank.
Since then, the protection has moved back to the normal £85,000 level (£75,000 from 1 January 2016). Northern Rock has now been purchased by Virgin Money and all accounts rebranded as Virgin Money.
Barclays and ING Direct
In October 2012 it was announced Barclays was purchasing ING Direct, the UK savings arm of the Dutch bank ING.
They were protected very differently. As part of the UK FSCS, Barclays customers got the full protection of £85,000 per person. As part of the Dutch compensation scheme, ING Direct savers would have had to claim from the Dutch Government, up to their €100,000 compensation limit, if it went bust.
Since 18 March 2013, everyone holding an ING Direct savings account is now protected under the Barclays UK FSCS compensation limit. The £85,000 protection (£75,000 from 1 January 2016) is now shared across ING Direct, Barclays, Standard Life and Woolwich.
Marfin Laiki Bank and Bank of Cyprus UK
In April 2013 it was announced that all UK accounts at the Cypriot-owned Marfin Laiki Bank were to be sold to Bank of Cyprus UK. Previously unprotected in the UK, account owners now have full £85,000 protection (£75,000 from 1 January 2016).
AA Savings and Bank of Ireland UK
In October 2015, the AA launched a partnership with Bank of Ireland UK. All AA savings accounts opened after 6 October 2015 share their £85,000 FSCS protection with Bank of Ireland and Post Office Money, so if you’ve savings with either of these, check the total saving isn’t more than £85,000.
Any AA account opened before 6 October 2015 will continue to be protected by Birmingham Midshires, and so will share the £85,000 savings safety protection with Bank of Scotland, BM Savings, Halifax, Intelligent Finance, Saga and Aviva.
What if my building society has merged with another?
In the aftermath of the financial crisis, a spate of building society takeovers peppered daily news broadcasts. Initially, the Government acted to protect savers who had money stashed in two different building societies that merged, but that ended in December 2010.
So, if you have money in more than one of the institutions contained within the following groups, you now only have £85,000 protection across that group (£75,000 from 1 January 2016).
- Co-operative Bank and Britannia
- Nottingham and Shepshed building societies, trading as Nottingham BS
- Coventry BS and Stroud & Swindon BS
- Yorkshire, Chelsea, Barnsley, Norwich & Peterborough building societies, plus Egg.
Nationwide used to share its protection with Cheshire, Derbyshire and Dumfermline Building Societies, but all products held with the three smaller building societies are now Nationwide branded.
What about saving with foreign banks?
There are lots of overseas-owned banks operating in Britain, including Santander, ICICI and Yorkshire Bank. 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 £85,000 per person protection (£75,000 from 1 January 2016). Yet there's a subtle extra dimension...
If a bank gets into trouble, it's to be hoped the UK government would arrange a bailout, so all your money's protected (though that of course isn't guaranteed). This hasn't just happened with UK-owned Northern Rock and Bradford & Bingley, but also with Iceland-owned (but UK-regulated) Kaupthing Edge (see more on the Icelandic Bank Collapse).
Where possible, always keep your cash within the £85,000 limit (£75,000 from 1 January 2016), as it's an aim but not a promise to bail out banks that fail. However, this is particularly true with non-European banks, as this has not been tested yet (and hopefully won't be!).
Some European banks may NOT be UK protected...
It is possible for a bank to be operating in the UK with the FCA's full approval, yet the protection you get is not provided by the UK Government. It's not banks owned in far-flung countries you need to 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, which 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 and solvency of a foreign government.
Of course, some countries may be more financially stable than the UK, but remember you're then reliant on a government you don't have a vote for to actually choose to pay out.
On a positive note, since 2010 all European countries have been required to have a compensation limit of €100,000 (the UK uses £85,000 as we aren't in the euro).
However, because of the relative strength of the pound, the UK limit is actually equivalent to almost €120,000, meaning that to keep harmonisation with the EU rules, the UK limit will drop to £75,000 from 1 January 2016. In the past, the amount protected varied depending on the home country of the bank, now this is no longer a factor.
One final note. It's possible for a European bank to operate in the UK using only its home compensation scheme, even if that's lower than the UK scheme, so you'd be eligible only for that amount. In this situation, the foreign bank will not be FCA-regulated but it may still be regulated by its Governments own protection scheme.
Currently, the only bank that falls under this category that we mention on site is RCI Bank. RCI Bank is a French Bank (owned by the French car manufacturer Renault) and is protected under France’s deposit protection scheme. That means if anything happened to your money in with RCI Bank you’d be protected for up to €100,000.
With non-UK regulated examples like this one, bear in mind it may be harder to get your money back if anything did happen to the bank.
Which banks does this apply to?
Here's a list of the big non-UK savings banks and smaller top payers that have been in our best buys over the past few years.
Overseas banks with savings accounts in the UK
|100% protected by FSCS (No passport exemption)||Not covered by UK FSCS (Passport-exempted)|
|Allied Irish Bank (UK) (Allied Irish)||Anglo-Irish Bank / IBRC (see note below)|
|Asda (Santander)||Triodos Bank|
|Bank of Cyprus UK||RCI Bank|
|Bank of Ireland UK|
|Clydesdale Bank (National Australia)|
|Firstsave (First Bank Nigeria)|
|Al Rayan Bank|
|ING Direct (Barclays)|
|State Bank of India UK|
|Yorkshire Bank (National Australia)|
Anglo-Irish Bank was merged with Irish Nationwide Building Society to form Irish Bank Resolution Corp after both were nationalised at the height of the banking crisis in Ireland.
Most accounts were transferred from Anglo-Irish to Allied Irish Bank. The few that remained should have been refunded by the Irish goverment's Deposit Guarantee Scheme when IRBC was forced into liquidation in February 2013.
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Will my bank or building society go bust?
Take a trip back a few years and this question would've been laughed out of school. Yet 2007 and 2008 saw such massive tremors - with Northern Rock, Bradford & Bingley, Icelandic banks and Wall Street giants Bear Stearns, Merrill Lynch and Goldman Sachs experiencing various degrees of catastrophe - that everyone started asking "Am I safe?"
For the moment, things appear to have calmed down, but you should take nothing for granted.
Bailouts more common than payout
It's right to focus on the FSCS compensation scheme, as that's guaranteed by the UK government, but actually it's the last line of defence.
With most of the banks that collapsed during the financial crisis, politicians stepped in with alternative remedies. Both Northern Rock and parts of Bradford & Bingley were nationalised, and Kaupthing Edge's savings business was transferred to ING Direct.
That could be seen as a huge statement of intent that politicians will take extreme action to avoid a bank going to the wall. Of course, since then we've had a change of government, so we don't know how it'd work now - but it's likely similar things would be tried.
The only UK savings bank that went into liquidation was Icesave. Unlike fellow Icelandic bank Kaupthing, its structure meant it was technically an Icelandic bank, not a UK one. Even then, the Government covered every penny, not just the £35,000 compensation limit (as it was back then).
Even with this though, while the Government's intention 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 Government's intention is to protect all savers, but only the first £85,000 is guaranteed (£75,000 from 1 Jan 2016). 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. 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 say 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, then ratings are 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 (if an insurer went down, while other insurers must contribute first, above a set level banks would be asked to chip in too) so funds should be available.
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 FCA's review document (page 77), it admits:
"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."
In a nutshell, this means if the fund didn't have enough cash, the Government will lend it the money, and it will then try to get it back from the insolvent bank's assets and by putting a levy on the banks for years to pay it back. Indeed, 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. Until 2008, 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
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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. So 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.
Under £85,000 (£75,000 from 1 Jan 2016)
If you've less than £85,000, there's no problem in terms of protection. Yet if a bank went bust and you were to have to claim compensation this could take time (though the procedures have been sped up), and meanwhile you wouldn't have access to any cash. So it's still worth considering splitting money across more than one financial institution.
For those with bigger savings, in the unlikely event a bank or building society went bust, the golden rule is not to put more than £85,000 in any one financial institution (£75,000 from 1 Jan 2016). Spread 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, from a house sale) there's now a temporary six-month £1 million limit. This only applies after a 'life event' has caused you to have temporarily high cash balances. Life events can be house sales, inheritances, compensation paid, insurance policies & several other events.
If you do have a claim while you're protected by this temporary limit, you'll need to prove where the high balance came from for the claim to be approved. You would then have to wait up to three months for the FSCS protection to pay out.
If you'll have permanently high cash balances after the life event, you may need to forget the £85,000 limit and just spread your cash into three or four 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 10 very competitive accounts, meaning you can save well over £85,000 in perfect safety (£75,000 from 1 January 2016). To help, at least 10 top accounts are included in the Best Buy Savings Accounts guide, 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.
National Savings and Investments (NS&I)
All money in the state-owned bank NS&I is fully backed by the Government, meaning money put in there is as near to 100% safe as you can get.
Technically it doesn't have any more protection than any other institution, as 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 returns on them aren't great (see the Premium Bond Probabililty Calculator) and you can only put £50,000 in there anyway.
It does have other products, including normal savings accounts, 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. Once debts are gone, they're gone, so it's safe. 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 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.
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 (you used to earn interest too, but sadly not any more).
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.
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.
Between May 2010 and 31 December 2011, it had the same protection as any other UK bank (£85,000) with the one exception of any fixed-rate savings set up before 24 February 2010, which retain their fully Government-backed status until they mature.
On 1 January 2012, Virgin Money completed the purchase of the savings arm of Northern Rock. Virgin has now rebranded all Northern Rock accounts, so they now fall under the same lot of £85,000 FSCS protection.
Your money's not safer under your mattress.
If you don't trust banks, you may want to stash cash under the mattress. But most home insurance policies only cover up to £750 cash if it's nicked. Plus - as a fireman told us - "Money under the mattress make a nice accelerant in house fires for us to deal with."
So, all in all, it's probably better to find a decent savings account for your cash.