Are my savings safe?
Full guide to protecting your cash
Just over a decade ago we saw banks collapse and others bailed out by the taxpayer. Following on from that, every sensible saver needs to make sure their money is safe should the worst ever happen again. Broadly speaking, savings in a bank are protected up to £85,000. Our guide tells you full info of what protection's out there, and lets you check if your bank is protected.
How are savings protected in the UK?
The main protection is from the Financial Services Compensation Scheme (FSCS). It was set up to cover people's savings in the event that a bank were to go bust.
The FSCS protects 100% of the first £85,000 you have saved, per financial institution (not per account).
So, in very simple terms, if your bank were to fail, the FSCS aims to get any savings up to this amount returned back to you within seven working days.
While that sounds simple, it can be a little complex as some banks are part of groups (this is why we refer to financial institutions). If this is the case with yours - then you have to be a little wary as sometimes the protection's split between them.
Plus, some banks offering savings accounts in the UK aren't regulated in the UK, so they wouldn't be protected (read more on what counts as UK-regulated).
This guide takes you through full details of the FSCS scheme, plus what to watch out for.
Which savings types are (and aren't) covered by the FSCS?
The FSCS only applies to organisations regulated by the Financial Conduct Authority (FCA).
The main categories of protected savings are:
- Current accounts.
- Savings accounts (incl Sharia accounts).
- Cash ISAs (incl Help to Buy ISAs & Tessa-only ISAs).
- Small business accounts.
- Some guaranteed equity bonds.
- Some 'deposit accounts' - where interest paid depends on stock market performance.
- CASH saved within a SIPP pension - ask your provider which bank(s) are holding your cash, so you can check if it's linked to any other banks you have savings with.
Pensions, life assurance, insurance premiums and investment funds can also be covered if the provider goes bust, depending on how they're set up. See the quick questions below for full information.
But the FSCS doesn't protect:
- Investment losses.
- Money in savings stamp schemes.
- Cash in a Paypal account.
- Cash on a prepaid card.
- Loyalty points.
- Money in a cashback account.
- Cash saved in a Christmas hamper club.
- Money held by firms you've ordered from but haven't yet had the goods from.
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. The FSCS protection can be different...
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 generally there's no safety net to fall back on – 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, but as a rule of thumb...
Investment funds. If you've put cash into an investment fund (eg, through a discount broker), you'll get 100% of the first £85,000 back.
Pensions. The protection you get for your pension depends on how your money is held. It can get quite complicated, but in general:
- For annuities, your money is 100% protected.
- For investments, 100% of the first £85,000 is covered.
- For cash, 100% of the first £85,000 is covered.
If you've got a self-invested person pension (SIPP), the FSCS protection will depend on how you decide to invest your money.
If you choose to invest in stock market funds or other investment vehicles, 100% of the first £85,000 is covered.
- Life insurance. Money paid into life assurance products usually falls under the category of 'long-term insurance', meaning 100% of what's in them is protected.
If you take out home, car, travel, life insurance etc, and the provider goes into default, then the Financial Services Compensation 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.
Financial Services Compensation Scheme need-to-knows
Here's how the scheme works and when you are (and aren't) covered by it:
As we say above, the Financial Services Compensation Scheme (FSCS) protects up to £85,000 per person, per financial institution.
Yet the definition of an 'institution' depends on a bank's licence and giant banking groups make it complex.
For example, sister banks Halifax and Bank of Scotland, both owned by Lloyds Banking Group, share a banking licence and so are counted as one institution. Cash saved with those two banks would only be covered up to a maximum £85,000 COMBINED.
However, RBS and NatWest are both owned by the NatWest Group, but each bank has its own banking licence, so their limits are SEPARATE. You could save £85,000 with RBS and £85,000 with NatWest and it would all be covered by the FSCS.
Our What counts as an institution? tool below has details of the banks we feature in our savings guides, and whether they're linked to other banks for FSCS purposes.
It's also worth noting that even if your bank isn't linked to any others for FSCS purposes (ie it's a separate institution), the protection's per institution, not account. So four accounts with one bank still only get £85,000.
Money saved in an account registered in two names receives twice the protection; therefore that's the first £170,000. 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.
The best way to work out the protection that applies is to know that the FSCS considers that half the money in the account belongs to each person. An example should help...
Imagine you and your partner have £170,000 in a joint account in Bank A. You also have £20,000 in a separate account of our own, also at Bank A.
If the bank went bust, the FSCS would consider half the joint account money (£85,000) as yours, as well as the separate £20,000. So, while your partner's £85,000 would have full protection, only the first £85,000 of your £105,000 would be protected. You could lose £20,000, as not all your savings are protected by the FSCS.
One way to avoid this issue is to have any savings accounts that might take you over the limit held at a completely different banking institution.
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.
4. Up to £1m is protected in one institution for six months after life events, eg selling a property, getting an inheritance
Savings of up to £1m may be protected for a six-month period if your bank or building society goes bust.
This special provision is to cover life events such as selling your home (though not a buy-to-let or second 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.
If your bank was to go bust while you had a high balance protected, to claim you'd need to prove where the funds came from, and be prepared to wait up to three months for any cash over £85,000.
You can read more about what qualifies as a 'life event' on the FSCS website.
How does the £1m limit change my savings strategy?
Imagine you sell a £600,000 home and intend to rebuy within half a year. Without this temporary high balance protection, you'd need to put the cash 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.
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'. This is where they're authorised and regulated by their home government, and the UK accepts that this regulation is equivalent to its own.
Under the terms of the Financial Conduct Authority's 'temporary permissions regime', these banks can continue to offer their services in the UK until the end of 2023. After this, they will either need to stop offering banking products to UK residents, or they will need to have their own UK licence to operate here.
If you have a savings account with an EU bank that's operating in the UK under the temporary permissions regime, you're reliant on the bank's HOME country scheme for savings protection, not the UK's FSCS (on a positive note, all European countries are required to have a compensation limit of €100,000).
Many EU-regulated passported banks are applying for UK licences, and once that's been granted, any account you have with that bank will be protected by the FSCS.
What if I'm saving in an offshore account?
Any savings held in an 'offshore account' eg with a bank based in the Channel Islands or Isle of Man etc, 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 bank where it is regulated and what protection applies.
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 Halifax and Bank of Scotland, both part of Lloyds Banking Group, and the protection limit is combined. You'd only be able to save £85,000 altogether in safety.
- Put money in Royal Bank of Scotland, NatWest and Ulster, which are all part of the giant NatWest Group, and you get separate £85,000 protection for each of the three banks.
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. 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. Make sure you check which banks are linked before picking accounts!
Over £85,000. 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. Spread your savings around a number of accounts. Just use the tool above to check they genuinely are separate institutions.
Very large amounts. If you'll have permanently high cash balances, 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.
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. It'd take the UK going bust for it to be in trouble (and if that happened, we'd all have bigger problems!).
NS&I's most popular product is Premium Bonds, though 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 4% interest mortgage is a bit like earning that amount on savings after tax as DECREASING your costs is similar to EARNING cash.
Plus, 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.
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. So, it's probably better to find a decent savings account for your cash.
Savings safety FAQs
In this section we address some of the less common scenarios around FSCS and saving safety that won't affect most people, but that we have been asked about...
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 here at MoneySavingExpert. 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 is what 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, try seeing how its creditworthiness is rated on Fitch Ratings.
It's also worth searching Google News for any stories about the company.
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.
If you have savings in one institution which come to more than the FSCS limit of £85,000, 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).
We focus this guide on the Financial Services Compensation Scheme, but actually it's the last line of defence.
Most banks will see if they can borrow from the Bank of England, or other investors to ensure they stay solvent before getting anywhere near going bust.
However, things have changed since the 2008 financial crisis. While the Government stepped in then to ensure banks didn't go bust, there's little political appetite to do that again (especially as the state still owns parts of Lloyds and NatWest Banking Groups more than 10 years later).
Instead, new regulations were drawn up to try and prevent banks getting in such trouble again, and also to ensure the taxpayer isn't on the hook to save them if they do.
Part of the new regulations meant that banks which have more than £25bn of savers' cash need to ringfence their retail banks (the parts of the bank which offer current accounts, savings and mortgages) from their investment arms. This way, savers' deposits aren't used to finance banks' stock market gambles, which obviously makes things safer.
The other main measure was that any bank in trouble should perform a 'bail-in' rather than get a 'bail-out'.
A bail-in can be quite complex, but it essentially means that a bank's shareholders and creditors (people who have lent the bank money) will be first to take the financial hit.
You, as a saver, will have a very high priority to get your money back from the failed bank (though the FSCS is there as a back-up for the first £85,000 you have). Even if you have more, you still have a higher priority to get money back than investors, suppliers and creditors of the bank.
So, long story short, the Government will allow you to lose money, but only if the bank can prove it's taken every measure to get its bail-in from other sources.
Yet, even this misses a bigger point...
The FSCS protects £85,000 per person, per financial institution. Stay under this savings limit per bank, and you'll be protected
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.
In theory, this means should the worst happen and a bank goes out of business, the FSCS has legal power to call in funds from major financial institutions to cover the compensation needed.
Yet, the FSCS has a cap on how much cash it can levy per year from financial institutions - just over £4 billion.
But if the FSCS's fund didn't have enough cash, the Government would lend it the money (ie taxpayers' money), and would 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.
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