Protect your savings from the banking crisis
It's hard to stay on top of the current situation with the banks and work out where your savings are safest. You could be forgiven for thinking your money is better off under the mattress, but we are here to guide you in the right direction and explain how to ensure that you make the most of confusing guarantees
In these uncertain times it is harder than ever to know where best to invest. Even cash deposits now seem to carry unforseen risk.
With the World's economies reeling from closed credit markets and fluctuations in the stock exchanges many countries, including the UK, are introducing enhanced savings guarantee plans to protect their consumers from the fall out if a major bank should fail. Ireland announced this month that deposits in many Irish bank accounts will be 100% guaranteed regardless of the amount of money on deposit and with the Greek and Danish Government following suit many European countries are tipped to go the same way.
What about British banks?
So far, the only British banks to be given a 100% deposit guarantee are, in effect the nationalised Northern Rock and National Savings & Investments (NS&I). Unfortunately, the rates offered by these banks leave a lot to be desired when compared to the whole market but reduced returns seem to be a sacrifice many are willing to take to secure their savings.
If you shop around and find a higher rate on offer elsewhere then there is always the £50k guarantee offered by the Financial Services Compensation Scheme (FSCS). This covers savings in a UK bank account up to £50k for an individual personal account and £100k for a joint account.
The protection also applies to small business savings accounts. In reality all Contractors will be classed as a small business by the FSCS as you employ less than 51 people, have an annual turnover of less than £6.5m or have a balance sheet total is less than £3.26m. Small businesses are currently covered by the guarantee on £50k and there are new plans for the Financial Services Authority (FSA) to protect you further.
If you have individual savings of over £50k on business or personal accounts, with the same bank, then now could be the time to take action and ensure that your savings are safe from another bank collapse, By splitting your money across multiple accounts and avoiding overseas institutions you are building a greater degree of certainty into your cash deposits.
Now for the science bit
There is an important detail that must be covered in order to fully secure your money across a number of institutions; the UK bank accounts must be separately authorised by the FSA to ensure that you can claim for £50k in each account.
It can be difficult to ascertain whether or not your bank is linked to another, but our list below shows which banks are separately authorised. Each numbered group is listed under one FSA number:
- Abbey, Cahoot, Bradford & Bingley
- Barclays, Woolwich
- The Co-Operative Bank, Smile
- HSBC, First Direct
- Halifax, Bank of Scotland, Birmingham Midshires, Saga, The AA. Intelligent Finance
- Bank of Ireland, Post Office
- Lloyds TSB, Cheltenham & Gloucester
- Newcastle Building Society, BMW Savings
- Royal Bank of Scotland, Direct Line
- Yorkshire Bank, Clydesdale Bank
If you have £150k in savings then you can choose one bank from any of the ten groups above for each £50k. For example, you could have £50k with Lloyds TSB, £50k with The Co-Operative Bank and £50k with Barclays to guarantee the full £150k under the FSCS scheme.
However, if you had £50k with Abbey, £50k with Cahoot and £50k with Bradford & Bingley then only £50k would be covered under the guarantee scheme because they are all authorised together under one FSA number (see number 8).
Are there any other options?
Whilst there are a number of High Street banks available, you may choose a less conventional option such as opening a savings account with your supermarket.
Tesco have recently bought back the shares owned by Royal Bank of Scotland in their savings products because they wanted to be individually authorised by the FSA. Whilst Royal Bank of Scotland still run the administration of the accounts, Tesco is independently authorised and you could therefore have an account with both the bank and the supermarket, safe in the knowledge that you can claim for £50k in each.
There are also a number of online savings companies such as ING, which offer very competitive rates and instant access to funds. However, as we have learnt with ICE last week, rate and convenience is not always the best option when it comes to your money and sadly in the case of the Icelandic accounts , if a deal seems too good to be true then it probably is. At least with a UK bank you would have somewhere to go and queue to get advice rather than a computerised message and it can sometimes be hard to tell if online savings accounts are from the UK or abroad where they are not covered by the UK guarantee.
The key point to remember is that the FSCS guarantee scheme works for any UK provider authorised by the FSA and as long as you are smart with your investments, you have little cause for concern regardless of where the credit crunch bites next.
Alternatively you could forgo the apparent security of cash altogether and invest in shares for dividend yield instead. With the price of stocks at current lows income funds will exploit the likes of BP and BT which are paying very hefty divis and should be able to weather any potential recession.
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