Moneygate

How safe are my savings?

The near collapse of the world’s banking sector has understandably left many consumers worried about how safe their money is – even if their money is in one of the top investment funds.

But according to national IFA Moneygate, the good news is that there are a number of safeguards and structured investment solutions in place to protect people’s life savings and nest eggs.

It was the crisis at Northern Rock in 2007 that first brought into sharp focus the question of how secure people’s savings might be. Many people will remember pictures of concerned Northern Rock customers queuing up to withdraw all their cash.

Annabel Green from Moneygate explained that there has in fact been a system in place for some time to protect people’s money.

Miss Green added that The Financial Services Compensation Scheme (FSCS) was strengthened in October 2007 to ease the crisis – with much debate since then on how to improve the system while still offering consumers the ability to shop around for the top investment funds. The first measure announced was an increase in the amount of bank deposits guaranteed by the Government, which has gone up from £35,000 to £50,000.

Here we take a look at how much protection consumers can expect should the worst happen in the future. Before the Northern Rock furore, 100% of the first £2,000 of deposits, then 90% of the next £33,000 were protected. On 1 October 2007, that was extended to all of the first £35,000 per bank per customer and then a year later the threshold was raised so that each saver’s first £50,000 per bank is fully protected.

This only counts for a net deposit, so if you had £50,000 deposited but also had a £20,000 loan with the same bank, then only £30,000 would be compensated. The other big potential change is a plan for access to compensation for at least some of your savings within seven days of a bank closing. At present it would take about a month to receive compensation if a large bank closed, and longer for some other institutions.

Moneygate’s Annabel Green said: “If you have an account with a UK bank, building society or credit union then your deposits are covered up to £50,000.”

Increasingly people are looking to banks and building societies outside the UK to get the best investment returns for their money and snap up some appealing structured investment solutions.

Banks from outside Europe are required to set up a UK subsidiary if they wish to operate in the UK and those subsidiaries have to be members of the FSCS, so your deposits there would also be covered. A more complicated situation arises if you have an account with a bank from somewhere in the European Economic Area (EU members plus Iceland, Norway and Liechtenstein) in which case your bank may be covered by their home scheme.

Schemes in the EU have to offer compensation for at least the first 20,000 euros (£16,300), although they may offer significantly more than that. In addition, they may agree to a top-up arrangement by which the FSCS would pay the difference between their home scheme's compensation and £50,000.

Miss Green said: “If you are unsure whether you are covered you should contact your bank and ask them. A couple with a joint account is covered per person. So each person in a couple would have £50,000 covered in the account - so up to £100,000 in total would be protected.”

Similarly, if you spread your money across different banks in order to get the best investment returns on your cash by cherry-picking the top investment funds available, then this would be covered separately. For example, you have £50,000 saved with Barclays and £50,000 with HSBC, all of this would be protected as the rules are for deposits per customer and per bank.

For more information go to www.moneygate.co.uk