James Daley: Simplicity could end sleepless nights
Saturday 04 October 2008
If I had been given a tenner every time someone asked me whether their savings were safe over the past few weeks, I'd be well on my way to an early retirement. Friends, family, colleagues, readers – everyone wants to know the answer to the same question: which bank can I rely on?
Although the credit crunch is now more than a year old, what's struck me recently is that there's still a lot of confusion about exactly what would be and what wouldn't be covered by the Financial Services Compensation Scheme (FSCS), in the unlikely event that a bank should ever go bust.
And once you start to dig down into the finer details of the FSCS, it's not hard to understand why.
For this reason, I want to do my best to answer the questions that readers have put to me over the past week, and to help people to understand exactly how the FSCS works, and where its limitations are.
Almost every bank and building society that operates in the UK has a licence that is issued by the regulators, and with each licence comes automatic enrolment into the FSCS. If your bank is covered by the FSCS then that means – as of Tuesday – that if it were to go bust, all of the first £50,000 of your savings would be covered.
One complication, however, is that some banks own other banks – and whether the £50,000 guarantee covers each of these institutions, or just the group as a whole, depends on the organisation's structure. So, for example, HBOS owns Halifax, Bank of Scotland, Intelligent Finance and Birmingham Midshires but only has one licence for the lot of them. Hence, if you've got money with each of these banks, you'll still only get the first £50,000 back from the total of your savings across all four institutions.
When it comes to Royal Bank of Scotland and its subsidiary NatWest, however, both banks still have their separate licences. So customers with £50,000 in each would still get all of their money back were the group to go bust.
Abbey has taken over Bradford & Bingley's savings book, after the bank came dangerously close to collapse at the end of last week. However, it does not have B&B's licence. So people with Abbey and B&B accounts will only have one lot of protection. Conversely, Abbey has kept Alliance & Leicester's licence, so once its takeover of A&L is complete, customers with accounts at both banks will have full protection. Confused yet?
Ultimately, to find out how much protection you have, you need to find out who owns the banks where you keep your money, and call it to clarify how they are structured.
One other complication of the FSCS is that a small number of European banks do not have to be, and are not, directly regulated in the UK. As a result, deposits in these banks are covered by the protection scheme in the country in which they are based, not by the FSCS. So, for example, if you have your money in the Bank of Cyprus, you'll be covered by the Cypriot depositors' protection scheme which only protects 90 per cent of your savings up to a limit of €20,000 (£15,700).
So with all that in mind, where is your money safe? Alas, government-owned Northern Rock has now taken in so much money that it is starting to close its doors to new savers. That leaves National Savings & Investments, which is also Government-backed, but the rates are not nearly as competitive.
Abbey, which is owned by Banco Santander, and HSBC remain the two best-capitalised private banks. Nationwide, the UK's largest building society, is also in good health. Meanwhile, the Irish government has fully backed the deposits at each of the country's six largest banks, so you might want to take a look at the good rates offered by Anglo-Irish Bank.
As I wrote two weeks ago, however, it's not politically or financially feasible for the UK Government to let any of the big name banks go under. So while it's stopped short of saying that all major banks are guaranteed, such a guarantee has been implicit since it stepped in at Northern Rock. As long as you're with a well known organisation, you should be able to sleep well at night.
The Government and regulators are looking at a range of reforms for the FSCS. I hope they work on making it easier for everyone to understand. Confidence is never going to be restored in the financial system if consumers don't have absolute faith that their money is safe.
Scottish Power hit with sales ban by regulator
There are 'dark corners' of the investment and pensions industry, says Pensions Minister
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Weekly Money: round-up of the personal finance stories you may have missed 2 to 6 March
Midweek Money: The end (of the tax year) is nigh: act now
- 1 Tourist films plane's descent just metres above packed Caribbean beach
- 2 Indian woman creates 'Marriage CV' after parents put her on dating site: 'Definitely not marriage material. Won’t grow long hair, ever'
- 3 World Book Day: Boy 'excluded' from school after dressing up as Fifty Shades' Christian Grey
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 GamerGate: developer Tim Schafer provokes rage with joke about online gaming activists at industry awards
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Durham Free School: 'Creationism taught at' free school facing closure
End of the licence fee: BBC to back radical overhaul of how it is funded
Elif Shafak: Turkish author warns against rise of British nationalism
Ex-head of MI6: 'We shouldn't kid ourselves that Russia is on a path to democracy'
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
iJobs Money & Business
£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
Day In a Page
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads