You have worked hard to build up savings and you hardly want to lose your money if your bank, building society or credit union experiences financial issues. Fortunately, the Financial Services Compensation Scheme (FSCS) will protect your savings but you need to understand how this works to ensure that all of your cash will be safe.
Spread Your Risk
If you have more than £85,000 in savings, avoid putting all of your eggs in one basket. The FSCS will only protect a maximum of £85,000 per financial institution for each person so it does not make sense to save any more than this with any single bank, building society or credit union. If they run into trouble, only the first £85,000 will be safe and the rest could be lost. Decrease your risk factor by limiting your savings to £85,000 per financial institution. This is a per person limit, which means that a couple with a joint account could save up to £170,000 per financial institution and still be protected by the FSCS.
You may also want to split your cash across different financial institutions even if you have less than £85,000 in savings. While your money is protected if anything goes wrong, it can take time for you to be able to get to your money. This could cause problems if you need to access your savings before this.
It is not necessarily as simple as ensuring that you do not save more than £85,000 with any particular bank, building society or credit union. Some financial institutions are linked together and no matter how many of these you bank with, you will only be covered for £85,000 across all of them. For example, the following financial institutions are currently linked: the AA, Aviva, Bank of Scotland, Halifax, Birmingham Midshires, Intelligent Finance and Saga. Even if you decided to spread your money between all of these options, you would still only be covered for a maximum of £85,000.
Check Whether Your Bank is Protected by the FSCS
All UK-regulated financial institutions are covered by the FSCS and this can extend to banks which have foreign ownership, assuming that they are also UK-regulated. Santander and Yorkshire Bank are two examples of banks which are foreign-owned but UK-regulated. In theory, this means that you will be able to benefit from FSCS protection up to £85,000 if they go bust. This happened when Iceland-based Kaupthing Edge collapsed.
However, there is no definite guarantee that you will be protected, even for banks in Europe. Some banks which are based in the European Economic Area (EEA) use a “passport” scheme protection. If they go under while you are banking with them, you need to go through the compensation scheme in the home country to get your money back.
Are There Any Other Options?
NS&I is state-owned and backed by the government. It is not a foolproof option but they should be bailed out by the government if they hit the wall. Their rates are not the most competitive but they are worth a look if you are particularly worried about the safety of your savings.