James Daley: Bank British, and you can sleep easy
Saturday 24 January 2009
Sixteen months on from the collapse of Northern Rock, the question on everyone's lips is still – where will my money be safe? And as Britain's biggest banks shed billions from their market values this week, it's still not a question to which many people feel they've found the answer.
In my opinion, however, if you've got your money with a reputable UK-based institution, there's nothing to worry about. Certainly, no one with money in Royal Bank of Scotland, NatWest, Lloyds, Halifax or Bank of Scotland need lose any sleep about the hammering their share prices took over the past week.
Aside from the fact that all of these banks are protected by the UK Financial Services Compensation Scheme – which guarantees the first £50,000 of any customer's deposits – RBS (which also owns NatWest) is now 70 per cent-owned by the Government. It's inconceivable that it could be left to go bust – because the Government will get much better value by simply taking over the remaining 30 per cent and rolling it in with Northern Rock.
The same can be said for Lloyds (which has acquired Halifax and Bank of Scotland). The Government now owns 43 per cent of Lloyds, so would be sure to step in and take over the rest were its shares to continue collapsing.
As for HSBC, this is a strong global business. The UK represents only a small proportion of its operations, so there's nothing to worry about there. The same goes for Santander, which owns Abbey, Alliance & Leicester and Bradford & Bingley.
Of the big UK banks, that leaves Barclays, which rejected the Government's offer of investment last year. This, theoretically, leaves it a little more vulnerable than its peers, which is why its shares fell faster than its rivals' this week. But Barclays is in relatively good financial shape, and is well placed to weather the storm if investors regain their confidence in the bank. If the worst comes to the worst, however, it still seems highly unlikely that the Government could let Barclays go bust – the consequences would be disastrous.
If you've got your money with UK branches of European banks, you are taking on a slightly greater degree of risk than by staying at home. In the first instance, your money will be protected by the compensation scheme of the country where your bank is domiciled (although the UK scheme will top this up to ensure that the first £50,000 of your savings is paid back if your bank was to go bust). Each country's depositor protection scheme is ultimately only as strong as the government that stands behind it.
Hence, if Bank of Ireland were to go bust while looking after your money, you'd have to hope that the Irish government could meet its promise to repay you. For one bank, it might be OK, but there's a question mark over whether it would be able to pay out if its entire banking system collapsed.
So, if you want to sleep easy at night, my advice is to keep your money in a British bank or building society, and don't put more than £50,000 with any one institution. Although there may be higher rates offered by non-UK banks, it's important to remember that these higher rates come with a greater risk.
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