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  How safe are your savings?

 

By Nevena Mulyachka and Mark Todd
Nevena Mulyachka is moneyhelpline’s Marketing Manager, specialising in money products such as insurance, credit cards, loans and savings. Mark Todd is one of the founders of energyhelpline and moneyhelpline. He is regularly on BBC1 and Radio 5 Live commenting on switching and saving.

Last updated on 12/01/2016



  Did you know

 

The Financial Services Compensation Scheme (FSCS) covers organisations regulated by the Financial Conduct Authority (FCA) and so includes banks, building societies, self-invested personal pensions and ISAs. It is an independent fund set up by UK financial institutions and regulated by the FCA and applies to everyone, no matter their age or where they live.

Since the protection is assigned ‘per institution’ rather than ‘per bank’, the issue becomes complicated with big banking conglomerates that include more than one bank and as sister banks, you’ll only get £75,000 of cover if you hold multiple accounts between them.



 

Sister banks include:

  • Lloyds, Halifax, BM Savings, Aviva, AA, Saga, Intelligent Finance and Bank of Scotland
  • RBS, NatWest and Ulster
  • First Direct and HSBC
  • Abbey, Santander, Cahoot, Alliance & Leicester, Bradford & Bingley
  • Barlcays, ING Direct, Standard Life and Woolwich
  • Britannia, Smile, Co-operative Bank
  • Virgin Money, Northern Rock and Church House Trust



 

Not all Banks will be UK regulated

In order to be entitled to the FSCS protection, your financial institution needs to be UK-regulated and whilst many foreign banks are (including Santander and ICICI) some European banks are able to operate in the UK, with FCA approval, without UK government protection. This is because banks within the EU are allowed to use a ‘passport’ scheme that would mean you would have to claim money back from its home country’s compensation scheme if it ever went bust.

It’s not that the danger lies in the home government’s compensation scheme, as all EU countries are now required to have a limit of at least €100,000, it’s that should one of these banks go bust, your savings will be relying on the stability and solvency of a foreign government so be wary of banking with financial institutions registered with economically unstable EU countries.

‘Passport’ banks include: Anglo-Irish Bank/ IBRC, RCS Bank and Triodos Bank



 

Peer-to-Peer Savings

The case with peer-to-peer savings, however, is different. Although since April 2014 P2P websites are subject to FCA regulation or charges, they are still not covered by the FSCS guarantee of £75,000 so if the company goes bust, your money goes with it. That’s not to say, however, that they are completely devoid of protection as the Big 3 (Fund Circle, Ratesetter and Zopa) have special funds set aside to cover your investments should borrowers default on their loans. This means that barring catastrophe, lenders should always be able to get their money back. Do make sure, however, that you fully investigate the safety precautions of these schemes as others outside of the Big 3 may offer higher rates of interest but are considerably riskier investments.

The Borrowers: Lending isn’t done carelessly as borrowers are subjected to credit checks and rated according to risk. When sticking with the Big 3 you can ensure a relatively secure service as they have pretty good systems to check that borrowers can repay and they have the facilities in place to chase repayments on your behalf.




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