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How safe are your savings?

View profile for Jonathan Beardmore
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With your capital tucked away in savings accounts, investments and mortgages, you’d assume that there is some kind of protection in place. But exactly how safe are your savings in the event of, for example, an authorised financial services firm going bust? That’s exactly what happened during the 2008 banking crisis, and UK taxpayers had to shell out £4.5bn to the people who had saved their money with Icelandic bank, Icesave.

You’ll be happy to hear that there is a safeguard in place for such an occurrence that can make such drastic means unnecessary, depending on which banks are affected. The Financial Services Compensation Scheme (FSCS) was established to provide you with a level of protection. Up to £85,000 worth of cash savings covered per individual, per financial institution, to be exact.

What does it mean by “per financial institution”, you might ask. Well, it’s a good question because the FSCS only applies to funds that are saved within a financial institution with a banking authorisation. This means that it’s likely that not all of your bank accounts, or even all of your banks, are covered. If you have savings of £85,000 or more with two different banks who are owned by the same institution with just one authorisation, you’re only covered for a total of £85,000.

On the plus side, there is a measure in place to protect temporary high balances. Should you, for example, sell a house or receive inheritance, you will be covered for up to £1m for six months for some funds.

If any of this raises concern then don’t worry, there are things you can do to optimise your protection:

  1. Find out which financial institution owns your bank:
    With recent years seeing mergers such as The Co-operative Bank and Britannia, amongst many others, you should check which financial institution your money is with – there are online tools available to help with this.
  2. Stay within the limit:
    If you are with two banks under the same banking authorisation and your savings with those banks exceeds £85,000, it might be worth transferring the excess to an account with another bank.
  3. Open a joint account:
    If you don’t want to spread your savings across banks, a joint account with your partner will essentially double your coverage as the FSCS covers you per individual.
  4. Think twice about offshore banking:
    Although the higher rates of interest may be attractive, banks outside the UK may not be covered by the FSCS.

Some banks in other countries are covered, for example, the French bank RCI, the savings arm of Renault, just joined the scheme, making its accounts “Brexit-proof.” It’s hard to say exactly what will happen with offshore funds after Brexit, however the FSCS has said it will continue to protect money for UK or EEA based customers with UK authorised banks, building societies and credit unions. If you’re a UK citizen but based in the EEA and are banking with an EEA branch of a UK firm, the FSCS will no longer protect your savings if we should experience a no-deal Brexit, however an EEA scheme from the country you’re banking in should be there to take over.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers LLP or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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