It’s safe to say that confidence in banks and financial institutions has been tested this year. From the RBS IT glitch to the Barclays LIBOR-fixing scandal, banks have come under more scrutiny from customers than they have in many years.
Given the climate of distrust, if you’ve got money to invest in savings you might feel a little ill at ease trusting your money to one of the UK’s financial institutions to safeguard your money, let alone grow it for you.
But the reality is, stringent rules placed upon these financial institutions mean that they have to guarantee the money you entrust to them – to a point.
Moneysupermarket.com takes a closer look at just how safe your savings are.
An important thing to remember is that any current account, savings account or cash ISA opened with a UK-regulated bank is covered by the government-backed Financial Services Compensation Scheme (FSCS) up to £85,000.
So, if you have less than £85,000 to invest your money is entirely safe. If you have more than £85,000 to save then you should split it between a number of financial institutions.
Some advisors suggest that you should invest no more than £83,000 per financial institution because this allows for interest up to the £85,000 limit.
If you have a joint account, you’ll each still get your £85,000 guarantee – so in effect a joint account is guaranteed under FSCS up to the value of £170,000.
There are some caveats you ought to watch out for to ensure absolute security for your money.
For example, not all UK savings accounts are UK-regulated. There are some European banks that operate on a ‘passport scheme’ in that they offer accounts in the UK, but are subject to regulation and protection from their home governments.
This includes the likes of ING Direct, Triodos Bank and Anglo-Irish Bank. Of course it may be that the government which regulates these foreign accounts is more stable and wealthier than our own, but you should be aware that protection may differ from our own.
As previously stated, FSCS covers you for up to £85,000 per person, per financial institution. Remember, however, that an institution is not the same as a bank.
If you had two savings accounts with one financial institution, you wouldn’t get £85,000 worth of protection for each account, you’d get £85,000 for the institution the two accounts are held with – so in effect, £42,500 per account.
One last thing
Remember that despite the recent problems faced by RBS and Barclays, customers’ money was not in jeopardy. RBS, NatWest and Ulster Bank customers were temporarily unable to access their money, but RBS stressed that the money was safe at all times.
It also promised to reimburse anyone detrimentally affected by its IT malfunction. UK banks are heavily regulated and have an obligation to their customers, so your money is generally very safe.