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How safe are your savings in the bank?

22 Dec 15

Going back hundreds of year’s people used to think that putting their money under their mattresses was safer than putting it in the bank. Then again a few years ago when the recession hit and a few banks went out of business people panicked again, but how safe are your savings in the bank?

Regardless of whether your bank goes out of business or there’s an issue all UK-regulated current or savings accounts alongside cash ISA’s through banks, credit unions and building societies are covered by the Financial Services Compensation Scheme (FSCS) which is a Government backed system. Under the FSCS system the first £85,000 of your savings (or £170,000 if you hold a joint account) is protected in the event of the bank or building society going bust. This means whether you have your monthly wages paid in to the account and they come almost straight out, or you have thousands of pounds worth of savings as long as they don’t exceed these limits they’re safe.

New rules came into play in July 2015 which means that savings of up to £1m can be protected for up to a six-month period after ‘life events if the provider of your savings was to go bust. Live events can include things like redundancy, selling your home, compensation pay-outs and other things which can mean that you have a temporary high savings balance. You might be made redundant and get a large pay-out but this is probably going to be used quite quickly so isn’t your traditional savings. If you do happen to come into some money just bear in mind that you have a few months to work out what to do with it, but don’t let it sit there forever. These larger pay-outs for most of us aren’t regular, how often do you get tens of thousands of pounds? The answer is generally only due to negative events, perhaps a grandparent has died and left you some money, or perhaps you lost your job due to redundancies. If this happens remind you have a little leeway to decide what to do with the cash before any worries if there’s an issue with your bank.

If you do decide to keep this quick win money in the bank remember that the £85,000 limit is not per account but per institution, so if you have two accounts in the same bank you still get the same amount of protection. It would be worth splitting larger amounts of savings between different banks just in case, but remember some banks are still connected. For example sister banks Halifax and Bank of Scotland would be covered by the same £85,000 if you choose to spread your money there. Just ask yourself how likely the money is to stay in the account, or would you need to use it for basic living expenses which soon pile up?

Be careful about banks which are not UK-regulated. Don’t just assume that just because your savings account is from the UK that they are regulated in the UK. Some foreign owned banks such as Spain’s Santander are UK-regulated and some EU-owned banks rely on protection primarily from just their own home government. You’ve worked hard for your money the last thing you want is to lose it if your bank goes under.