James Daley: Simplicity could end sleepless nights

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.

j.daley@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
PROMOTED VIDEO
Voices
Joseph Kynaston Reeves arguing with Russell Brand outside the RBS’s London offices on Friday
voicesDJ Taylor: The great tradition of St Paul and Zola reached its nadir with a worker's rant to Russell Brand
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
News
i100
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
News
Xander van der Burgt, at the Royal Botanic Gardens, Kew
scienceA Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

    Marian Keyes

    The author on her pre-approved Christmas, true love's parking implications and living in the moment
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick