Your banking crisis questions answered
With the banking crisis changing by the day, confusion about what exactly has happened and how it will impact customers, savers, borrowers and taxpayers is rife.
To help you decipher exactly what it happening – and how it will affect you and your money – Moneywise TV has filmed a special episode addressing your concerns and queries. You can watch the episode here.
And below, read a selection of queries and our answers. If you have any more then don't hesitate to get in touch.
Q: Ronald Pitt - I have a drip feed ISA account with RBS. Is it safe?
Assuming it is cash, then your money is protected under depositor protection rules.
Like other UK banks, Royal Bank of Scotland is authorised by the Financial Services Authority (FSA) and, as such, comes under the protection of the Financial Services Compensation Scheme (FSCS). Any money held in an RBS account (including ISAs) is therefore guaranteed up to £50,000. Anything over this amount could potentially be lost if the bank was to collapse.
The FSCS will only issue redress up to £50,000 per customer per bank – therefore, if you have more than £50,000 with the same bank or with two or more banks that share the same FSA authorisation, then again the surplus amount could be at risk. The FSCE defines “bank” as the name the institution is regulated/authorised as.
In the case of Royal Bank of Scotland, it is authorised as RBS. Other institutions that share the same authorisation are: The One Account and Virgin Money.
Other banks in the RBS group of companies include NatWest and Ulster Bank – however, both these firms have their own FSA authorisation and are not counted as the same bank by the FSCS.
If you do have more than £50,000 with Royal Bank of Scotland (either in one account or spread across different accounts in Virgin or The One Account) then you should consider moving the excess into a new account that has its own authorisation.
If your ISA is stocks and shares, then different protection rules apply; investment plans are protected under the Investment Compensation scheme. This will pay out if the company goes bust, but not if stockmarket turmoil eats into your returns. The maximum level of compensation you may receive from the scheme is £48,000 (100% of the first £30,000 and 90% of the next £20,000).
Q: Guest - I will need my savings within the next six months. Should I move my money from ING (Kaupthing) bank?
A: If your savings account was/is instant access then you should be able to access your money when you need to. If your account was/is fixed-rate then you could lose your interest if you close it early. ING Direct’s fixed-rate account is subject to 90 days loss of interest if it is closed early. However, when I contacted ING Direct about your query it says you will be subject to Kaupthing’s early closure rules, not ING's.
I suggest you check your terms and conditions, or contact ING Direct and explain what sort of account you have – they should be able to confirm whether you face an early-closure penalty or not.
For your information, ING Direct is covered by the FSCS and the Dutch deposit protection scheme, which guarantees money up to €100,000 (£77,000).
ING Direct is part of the Dutch bank ING Group, which has assets in excess of £1 trillion, and 85 million customers.
Q: Liz - I used my allowance for this year to open a new ISA with Icesave. I understand I will eventually get a letter explaining how to access my money and I believe that interest will only be from when Landsbanki was closed. But my question is will I be able to re-use my 2008-9 allowance to take another ISA?
A: This is an issue that will be affecting a lot of people. Northern Rock ISA savers who withdrew their money in the run-up to its collapse (the ‘run’ on the bank) were allowed to keep their ISA status, via ISA transfers rather than compensation.
ISA rules state that if the money is withdrawn then you lose your tax-free status – however, the Treasury has explicitly said ISA savers will not be disadvantaged by the collapse of Icesave.
A statement regarding this issue reads: “Arrangements are being put in place to ensure that all ISA customers of Icesave will continue to benefit from the tax-free status of their accounts.”
Q: I have my mortgage, savings and loan account all with the same Building Society (Woolwich), should I consider moving my savings account to another Building Society?
A: The FSCS takes into account any debt you owe to an institution when calculating compensation and deducts this from your redress. At the very least this would seriously eat into your saving compensation, but would most likely wipe any redress out. This won’t mean you’ll wave goodbye to your cash – it will just be used against any debt.
Just to clarify, Woolwich is no longer a building society – it demutualised in 1997 and is now owned by Barclays Bank.
Like other banking groups, Barclays has opted to register its main brand and Woolwich as Barclays on the FSA register. This means that, in the eyes of the Financial Services Compensation scheme, both these firms count as just one bank.
As deposit compensation is per customer per bank, you are only covered up to £50,000 for any money held in a bank authorised as Barclays – i.e. Woolwich or Barclays.
So, if you do decide to move your savings away from Woolwich (where your mortgage and loan are) then don’t move your money into a Barclays’ account as this will not offer any more protection.
Q: DC60 - We have accounts with three different banks, one is [Lloyds] T.S.B. also Natwest, And lastly Egg, previously Prudential, As its possible for these different names to be part of the same institution, therefore only qualifying for one £50,000 i set about trying to see if I could find out, I am still not sure. Can anyone help?
A: It isn’t actually that easy to find out how banks are authorised – all the information is technically available on the FSA register, but as I expect you’ll already know, this is not exactly clear! Plus, there are a few exceptions – for example, Virgin Money has its own FSA authorisation but its saving divisions is authorised as HBOS.
For you, the most important thing to know is that your three accounts are considered as separate in the eyes of the FSCS.
Lloyds TSB is authourised as Lloyds TSB, NatWest as NatWest (although it is part of the RBS group it is authourised as a separate bank) and Egg is authourised as Egg (although it is owned by Citibank).
Lloyds TSB is also the authorised name for Cheltenham & Gloucester and Cheltenham & Gloucester Offshore,
NatWest is also the authorised name for Natwest Offshore.
Q: Ron S - I have two annuities and wonder how secure are these in view of the financial crisis? One is aware of guarantees on banks and building societies but what about pensions that are being paid from private financial institutions?
A: Good question. Annuities are protected by the Pensions in Payment protection scheme. This means 100% of the first £2,000 “cash equivalent” is guaranteed with any outstanding balance (unlimited) “cash equivalent” receives 90% protection.
In this context, “cash equivalent” would be calculated as how much it would cost to re-buy the same annuity taking into account your personal circumstances (i.e. the fact that you will be older than you were when you first bought the annuity means you will now have a shorter life expectancy. This would actually boost your annuity payments).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.