Should we avoid saving in all Spanish banks?

16 October 2012

Q

In the August issue of Moneywise magazine, Francis Klonowski advised readers to "avoid anything with the Santander name attached to it" because of the economic problems facing Spain.What is his view on money held in other Spanish institutions, in particular, if my money is with one of the smaller Spanish savings banks (known as Cajas)?Does the Spanish government offer a similar guarantee on funds to the FSCS?
From
GM, Kilmarnock

A

Spanish banks are covered by a deposit guarantee scheme that ensures you get up to a maximum of €100,000 (£79,000) back if your bank fails.

Should a bank go bust the government will ensure everyone who has money with it gets back the first €100,000 of their money but everything above that will be lost.

The limit is per depositor in each banking institution. So if you hold a joint account the limit doubles to €200,000.

However, the question remains: how good is the government guarantee? As the Spanish government is also deeply in debt, it is not clear whether it has the financial strength to bail out the banks and honour these guarantees. I'm no economist, so I can't really express a view on this aspect.

The usual clichéd answer is not to put all your eggs in one basket - or, at the very least, no more than €100,000 in one bank.