What would happen to your savings if a bank collapsed?
In the UK, up to £85,000 of any individual’s cash savings are guaranteed by the Financial Services Compensation Scheme (in reality backed by the Government).
The limit applies per person, so cash in a joint account is guaranteed up to £170,000. There is only one guarantee per financial institution – so if you have two accounts with the same bank the overall limit is still £85,000. It is often difficult to find out if two apparently separate financial institutions are linked.
For example, NatWest, which is owned by RBS, has a separate banking licence and still counts as separate from RBS. But Cheltenham & Gloucester, which is owned by Lloyds TSB, shares a banking licence, so the protection across the group extends to only £85,000 per person.
When Northern Rock collapsed in 2008, the Government stepped in to make sure no saver lost money, however much they had in savings. But there is no certainty it would do so again.
The cautious approach is to limit savings in any one firm, or linked firms, to £85,000. That way all your savings are covered in full if the worst happens.
Some banks based in other parts of the European Union trade in the UK but are not covered by the UK scheme. The government of the country where they are based will guarantee up to €100,000 but getting your money back may take longer.
Foreign banks based outside the EU have to be covered by the UK scheme to trade here. If you deal directly with a bank outside the UK (including the Channel Islands and the Isle of Man) then it is not protected by the UK scheme, so check what protection applies.
* Read Paul Lewis's money news every month in Saga Magazine.