Money

Managing your money

Paul Lewis: How safe is your money?

A pile of twenty pound notes

Protect your savings in separate accounts if you're worried by financial turbulence, says Paul Lewis

As the world's economy – or at least our bit of it – goes through turmoil and uncertainty, more and more people are putting their money into cash.

Rates are good and it seems safe. But some are asking "what if?". What if a major bank did go bust and was not rescued, as Northern Rock was?

Under the current guarantee, the first £35,000 saved in cash in a UK authorised bank is protected 100%. The rest is unprotected. If the bank goes bust, you will get back a maximum of £35,000 from the Financial Services Compensation Scheme, an independent body paid for by the financial services industry.

An ultra-cautious approach is to keep all savings accounts below £35,000. Husbands and wives can have £35,000 each. And if they have a joint account, it is guaranteed up to £70,000. The same applies to all joint account holders.

The guarantee covers the savings owned by individuals in each separately authorised financial institution. So there is no point opening five accounts in the same bank with £35,000 in each. Your compensation will still be £35,000 in total. Even opening an account in another bank is not necessarily going to protect more cash.

An account with HSBC and another with its subsidiary First Direct would be treated as being in the same bank. However, accounts in NatWest and Royal Bank of Scotland – which owns it – are treated separately because the banks are separately authorised. So £35,000 in both accounts would be fully protected.

It is not easy or even possible to find out from the Financial Services Authority website which banks are separate. So always ask each bank if you plan to split your savings.

Some banks based in the European Economic Area are not separately authorised in the UK. Although you are normally entitled to the full £35,000, you may have to get the first part from the local scheme – which could be as little as 20,000 euro (£16,000) and the balance from the FSCS. That could take time. Again, ask the bank.

For more information see www.moneysavingexpert.com/savings/safe-savings

* Paul Lewis is the editor of Saga Magazine's Money News section and the presenter of BBC Radio 4's Moneybox. This article first appeared in the May 2008 edition of Saga Magazine. Paul's opinions are his own and for general information only. Always seek independent financial advice.

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