Savings Guide: Secure Savings and Compensation
Welcome to this Which4U savings guide video. Today, we’re looking at security for your savings.
Given the collapse of Northern Rock, a question on savers’ minds is: how secure are my savings if my bank goes bust?
The good news is: the vast majority of people will find that a healthy chunk of their deposits are protected by the Financial Services Compensation Scheme.
The Financial Services Compensation Scheme (or FSCS) covers deposits in current accounts, savings accounts, bonds and ISAs, to a maximum of £85,000 per person per institution. For joint-accounts, the compensation limit is doubled, to £170,000.
So, the £85,000 per person is clear enough, but what is an institution? This is where it gets more complicated.
An institution is best defined by its FSCS registration. Many banks hold separate registrations, so all deposits up to the limit are covered in each one. But many banks and building societies actually share registrations, which means that the £85,000 cover is for deposits across all of these together rather than each one individually.
Let’s look at Which4U’s savings page to demonstrate this. Here we have our table showing institutions that hold individual registrations. Savers are covered for up to £85,000 in each of these banks.
However, if we continue to scroll down, under Grouped Banks, we have identified by row and by colour those banks and building societies that have shared registrations. This means that the £85,000 limit covers deposits in all the banks within any one of these groups.
If, for example, you had £50,000 invested in Nationwide, and £50,000 in the Halifax, you should be perfectly safe, as they are separate institutions.
If you had £50,000 in Nationwide and £50,000 in the Cheshire Building Society, on the other hand, £15,000 of this would be at risk since these two share the same FSCS registration.
So, institutions are not straightforward. The important thing is, if you have a large volume of savings, that you know where you can deposit your money to ensure that all of it is covered.
Overseas Banks
There are exceptions to most rules, and this is no different. Some banks operating in the UK are based overseas. While most are covered by the FSCS in the same way as domestic banks, some banks from the European Economic Area (e.g. Bank of Cyprus*, ING Direct) use a “passport” compensation scheme of €100,000 through their home governments.
This is significant because there is no cast iron guarantee that foreign compensation schemes will pay out; it relies on the co-operation of a foreign government which might want to prioritise its own people first. There is no immediate sign of banking failure, but this may be worth considering before committing a large volume of savings to a ‘passport’ protected bank.
So, in summary: how do you best protect your savings?
- For maximum protection, deposit no more than £85,000 in any one FSCS registered institution.
- Savers with large amounts to invest should open multiple savings accounts with different institutions, and deposit no more than £85,000 in each one. This limit also includes interest. So, investing a few thousand pounds below the maximum £85,000 limit will ensure that interest can be factored into a maximum compensation claim.
- Why not consider investing in a government-supported scheme, such as National Savings & Investments (NS&I), which is supported by the Treasury. You can’t get much safer than that!
So, hopefully now you feel better informed about the security of your savings. More details are available on the main savings page at Which4U that has featured heavily in this video. Check out our YouTube channel for more guides, and follow us on Facebook and Twitter as well. We welcome all comments, questions and feedback.
*Update: The Bank of Cyprus established a UK subsidiary in June 2012. Hereafter, UK-based deposits are now protected by the FSCS
