Thanks to the FSCS we need never panic about the safety of our savings again.
Banks are a safe place to keep our money, or so the nation thought before the Northern Rock incident this autumn. Whoever thought that rumours of liquidation would see hoards queuing outside branches desperate to withdraw their cash before it disappeared into financial oblivion?
However, little did those queuing know that their money was actually protected by the Financial Services Compensation Scheme (FSCS), a fund that covers UK savers' investments should an established financial institution fall into difficulty and be unable to meet its designated commitments and responsibilities.
Even before Northern Rock our savings were protected by this scheme. However, because no one knew this reassurance existed, everyone panicked, withdrew their cash and made the whole situation a whole lot more stressful for everyone concerned.
As of the first Northern Rock rumours the FSCS already guaranteed the safe return of 100% of any savings amount up to £2,000 and 90% of further savings up to a maximum of £35,000. Once the queuing started this compensation level was increased to protect 100% of anything saved with a single institution up to a total of £35,000.
As of October 2008 the limit guaranteed by the FSCS increased from £35,000 to £50,000. This current compensation limit covers approximately 50% of the funds kept in UK based savings account but over 95% of the funds saved by individual depositors.
The head of the FSA, Callum McCarthy, stresses the need for greater consumer awareness of this protection and as investors we can learn from this experience. If you currently hold more than £50,000 in savings make sure you break it between several different financial institutions so that no one account falls above the compensation threshold and all of your money is protected.
Additionally, if something like this should ever happen again we should resist the temptation to do a dash and grab for our money but instead sit out the storm with the reassurance that anything untoward happen to our savings they'll be returned to us swiftly by the FSCS, that's one less thing to worry about then!
