Spread your cash around
The Financial Services Compensation Scheme (FSCS) recently increased the cash deposit protection level to £50,000 from £35,000, but for many savers this will not be enough to protect them and ensure they get their money back if a bank or building society were to go under.
For people lucky enough to have more than £50,000 in cash savings, then keeping your money in more than one account is vital at this time. However, spreading your cash around isn’t just a good move for people with over £50,000 in savings – if you have a mortgage or any other debt, or more than one account with the same bank, then this should be high on your to-do list as well.
1. If you have a mortgage or other loan…
The FSCS guarantees your cash up to £50,000 – but there are a few gaps in the protection it offers. One of the key issues that could affect a lot of savers is debt.
Any debts owed to the same financial institution that you have your savings with is likely be taken off the value of compensation. So, if you have £3,600 in a cash ISA and £4,000 in a savings account with Alliance & Leicester, plus a £100,000 mortgage, you will not receive any of your £7,600 savings back.
Even if your savings outweigh your debt (for example, a £2,000 personal loans from Alliance & Leicester and the same amount of savings as detailed above) the compensation you receive will be depleted.
2. More than one account…
If you have already taken the necessary steps to protect your cash by moving your savings into more than one account, then you may think you can relax. But watch out – another quirk of the FSCS is that it only covers you per bank – not per account or per brand.
Many banks in the UK are part of the same banking group, and in some cases are regulated by the Financial Services Authority (FSA) as one bank.
For example, Bank of Scotland, Intelligent Finance, Halifax, Birmingham Midshires/BM Solutions, AA Financial Services and SAGA are all regulated as HBOS – so, despite technically being six different banks, in the eyes of the FSCS they count as just one.
Another example is Abbey and Cahoot – these banks both share the same FSA registration number, as they are part of the same overall company, and therefore only count as one bank when it comes to FSCS protection.
You can find out how your bank is regulated by checking the FSA register. However, to make it easier for you, Moneywise has compiled a list of saving banks and building soceities plus their authourisation.
3. If you are a couple…
If you share your finances with a partner then you could take advantage of extra protection offered to joint accounts. FSCS protection is £50,000 per bank per customers – when an account belongs to two people, the protection limit doubles to £100,000.
So, as long as you are comfortable sharing your savings account with another person (be it family member or partner) this is well worth considering.
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 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.