We share our top tips for making sure that your savings are safe however much you have put aside.
There is no escaping the 'Credit Crunch', the omnipresent buzzword of the moment, as doom and gloom conversations about the economy become just as common as the archetypal discussions of British weather. As both forecasts are dim, there has never been a better time to make sure your savings are safe. Here are a few tips to ensure your funds are protected.
Keeping your savings safe
The legacy of the collapse of Northern Rock means more and more people are concerned with the safety of their savings. Whilst there are no guarantees and predicting the next collapse of a financial institution is a futile and difficult game, it is possible to protect your savings so you can sleep a little easier at night.
The most important thing is to save with those covered by the Financial Services Compensation Scheme (FSCS), an independent fund coordinated by the FSA (Financial Services Authority).
This scheme protects money saved in a regulated financial institution and provides compensation in the case of a collapse. Meaning that current and saving accounts, small business accounts (with a turnover of less than £1million) and cash ISAs held with banks and building societies as well as credit unions are protected. This scheme does not however extend to hamper schemes or savings stamps and will not provide compensation in the case of their collapse.
Under the FSCS your first £85,000 of savings with a banking group is protected (£170,000 on a joint accounts).
However, it is important to realise that this amount applies to your savings per institution as opposed to per account.
For example, if you have multiple accounts with one bank, only your first £85,000 with that bank would be protected. For this reason it may be advisable to spread your savings around.
You must also do your homework on which banks count as separate institutions.
Financial mergers that have taken place over the years have meant that some banks, while marketed individually, all fall under the same financial institution (i.e. Halifax, Bank of Scotland and Birmingham Midshires all fall under the HBOS umbrella). The FSCS will therefore only cover your first £85,000 in any of these banks in the unlikely case of its collapse.
The best starting point for finding out if your bank belongs to a parent institution is the FSCS website which refers you to a contact centre to assist you in learning how your savings are protected.
Your savings and European banks
Many European banks now offer saving products to UK residents and are covered by the FSCS in the same way as UK banks.
There are some which operate under a 'passport scheme' meaning that some of the compensation would be covered by the Bank's home county's compensation scheme if it falters. However, if that country's scheme awards a compensation amount lower than the FSCS then it will be topped up so that it matches £85,0000.
It is possible for some foreign banks to operate in the UK and only award compensation as dictated by their home country's scheme. As this could potentially be less than the amount you get in the UK it's important to find out how they are covered before opening up any investments with foreign banks .
The FSA website is also useful as they update their links of banks authorised by the FSA (and therefore covered by the FSCS) on a monthly basis.
There is now only one institution in which your money is 100% guaranteed: National Savings and Investments (NS&I). Although they may not offer the best rates, they are fully backed by the government so all of your money plus interest will be reimbursed in the face of a collapse.
Perspective
There is an always an argument for taking things too far and blowing the fear of economic crisis out of proportion. The best thing is to do is to get educated, know what's on offer and choose the best savings plan that suits you and your personal financial position. Happy saving!
