Savers urged not to panic

Savers were today urged not to panic as speculation continued over the future of Halifax Bank of Scotland.

Commentators stressed that people's money was safe with the group, as the focus shifted from HBOS's funding position to rumours that it was in merger talks with Lloyds TSB.

Kevin Mountford, head of banking at moneysupermarket.com, said: "HBOS is fundamentally a sound institution with sufficient access to capital.

"Its weak share price bears no relation to the undoubted strength of the business. It is not only one of the largest retail deposit takers in the UK, but also has a very diverse business."

He stressed that it was "highly unlikely" that any of the UK's major banks would fail.

He said: "I don't see how industry or Government would allow a major institution to disappear in the current climate.

"The banking sector is underpinned by the average person in the street, so confidence is critical."

Even if a UK bank did go under, savers' money would still be protected under the Financial Services Compensation Scheme (FSCS).

The scheme steps in to pay compensation to people who lose money as a result of a financial services firm that is authorised to do business in the UK going bankrupt.

The scheme currently pays out the first £35,000 that people have lost, which covers 97 per cent of all savings, although a consultation is currently under way over raising this limit to £50,000.

People with more than £35,000 in savings can protect themselves by ensuring that they spread their money between different institutions, as the limit applies to money held with each individual authorised group.

However, consumers do need to be careful that they do not simply spread their cash between different brands that have the same parent company, as this would count as one group.

For example, someone with £35,000 saved with Halifax should make sure they invest any money above this sum with banks other than Bank of Scotland and Birmingham Midshires, if they want to stay within the limit of the FSCS.

Equally savers with Lloyds TSB should avoid Cheltenham & Gloucester products and Abbey customers should avoid Cahoot if they have more than £35,000.

Another potential problem with the scheme is that it can take weeks and even months for people to get their money, although the Government plans to introduce changes that would see consumers paid the bulk of their cash within seven days.

People with mortgages also do not need to worry if their provider went bankrupt.

In this situation, the mortgage book would be seen as one of the business's assets and would simply be sold on.

In the meantime, homeowners would see very little difference and should continue paying their mortgage as normal.