Money
Managing your money
How safe are your savings?
UK banks have been under the spotlight following the Northern Rock debacle which gave a stark warning to those who thought their savings were safe, writes Holly Thomas
When Northern Rock went public on having to seek emergency funding from the Bank of England, customers drained their accounts in droves, fearing their life savings would be lost.
While the Government stepped in and guaranteed savers' money until the Rock "crisis" is over, others are left wondering that if their own banks hits hard times; what will happen to their cash?
The City watchdog has recently increased the limit of the safety net guarantee for money on deposit to cover the whole of the first £35,000 held by each saver, in the event of their bank going bust.
Previously savers were covered only for a maximum of £31,700 - all of the first £2,000 and then 90 per cent of the next £33,000 - by the Financial Services Compensation Scheme (FSCS).
Although the FSCS is there as a safety net, customers would not be able to get their hands on their money straight away but would have to wait until their application is processed.
An FSCS spokesman said: "We would hope all bank claims would take a matter of weeks and not months. We can give no firm timescale because there have never been any claims through the scheme for a bank."
Any saver with more than £35,000 should spread their money between institutions because the FSCS limit is per company. The limit also applies per person, so there is no need to worry about splitting up joint accounts. As long as there is no more than £35,000 saved in each company, the cash is guaranteed under current rules.
Be aware that some institutions are owned by the same parent group. For example, HBOS incorporates Halifax and Bank of Scotland so be sure to save with completely separate firms.
Some analysts have pointed to a comprehensive US insurance scheme - funded by the banking sector - which guarantees 100 per cent of up to $100,000 (£50,000) of deposits.
The Treasury is consulting on what measures should be in place to protect consumers if a UK bank hits hard times, and whether a higher limit should be applied.
Ever since Northern Rock customers were pictured queuing through the night for their money, confidence in our banks has been in decline.
Fewer than half of consumers now consider high street banks trustworthy, says a report by financial services specialist Teamspirit.
The failure of thousands of risky mortgages in the US left many banks carrying huge losses and unwilling to lend to one another.
It was this lack of ready money which meant Northern Rock was unable to raise the cash needed to pay off debts and offer new home loans, and organised a loan from the Bank of England.
* Holly Thomas is an award-winning financial journalist and Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
