The FSA seems to be missing an open goal in today's savings safety announcement. It looks like it's going to finally force banks and building societies to be open with customers about the protection regime (see FSA to raise awareness of FSCS scheme), yet why isn't it also ensuring they're upfront about who that protection is shared with?
The problem is that you could have cash with two separate bank brands but only be protected once given the key is not which bank you're a part of but which institution, and they're very different things.
Much of the legislative protection in the UK has rightly been focused on debtors. Yet these days, with pitiful interest rates, many people who've saved hard are earning pennies, and we must start focusing on their needs and requirements too.
Too often, I've been asked questions by people who, having asked their bank about savings safety, have been told 'it's 100% safe' and refused to even acknowledge the compensation scheme.
As the last few years have shown, that is of course nonsense, no bank is 100% safe with the arguable exception of the government-owned NS&I, so government-backed protection is crucial.
In fact, the entire savings safety situation is vastly overcomplicated. The simple phrase "you're protected up to £85,000 per person per financial institution" comes with more catches than Houdini's straight jacket.
And while the FSA is fixing one of the main issues, it's not fixing the other.
- Fixed: Only fully UK registered banks get this protection. To operate UK deposit accounts, most banks need to be part of the UK Financial Services Compensation Scheme's (FSCS) £85,000 per person protection regime. Yet some EU banks, such as the Dutch ING Direct, can opt out of this, and instead be protected by their home country – meaning if they went bust you'd be reliant on a foreign government to bail out UK savers.
It's very welcome that the FSA's announcement covers this as it plans to make banks say which country's scheme they are protected by.
- Not fixed: What counts as 'an institution'? Ridiculously, there's no natural definition, it all depends on a bank's licence. So while sister banks RBS and Natwest have separate licences and therefore you are protected for the first £85,000 per person in each, other sister banks Halifax and Bank of Scotland have one licence between them, therefore you only get one lot of protection in total for both.
Surely, to give proper comfort to consumers this should be written in large font too? So those who want to spread cash for maximum protection aren't confused. Currently, to find out how this works officially you need to look at the FSA's licence list – a confusing document that takes real work to figure it through (though our MSE Safe Savings tool distills it in an easier fashion).
As brands as disparate as the AA and Halifax are actually the same institution, this type of notice is seriously important.
So let me applaud the FSA for going a small step closer to following the savings summary box petition that over 60,000 people signed two years ago,but what is really needed is full disclosure with each product and a statement of exactly how this protection works.