Welcome to bank ratings - information for UK savers
Banks collapsing - never, then the credit crunch began and economic turmoil hit. In the UK alone, we've seen the bail out of Northern Rock, Bradford & Bingley, Kaupthing and the need to compensate Icesave savers. Banks have constant media attention at the minute so naturally people are extremely worried about their savings. Well what we have tried to do here is explain how the system works in the UK. So you can hopefully get an idea of your Banks strength and rating but most importantly make sure your savings are safe.
How safe is my Bank
Not even a city whiz kid can accurately predict the safety of any bank, in today's current climate the unthinkable only a year ago has happened on two separate occasions leading to government intervention. Northern Rock was completely nationalised and part of Bradford & Bingley with the profitable savings arm of the business sold off to the Spanish giant Santander.
The problem is rumours can cause unease and worst of all panic on the high street causing what's known as a run on the bank. This was seen in the case of Northern Rock where rumours and whispers caused widespread panic and customers withdrew their money in their thousands.
This ultimately lead to the bank collapse and subsequent take over. So whiles its impossible to predict the absolute safety of any bank or building society its worth knowing you can check the financial strength of any bank or institution using tools like the Fitch Ratings. AAA being the best and then graded downwards. Because current financial contagion means even this isn’t a particularly reliable indicator
It is also worth noting that the government will not allow a bank or building institution to go to the wall as has been proved with the recent billion pounds of investment HBOS and RBS group have received.
If they collapse what protection do I have
If the worst happens all Uk deposits are covered by the Financial Services Compensation Scheme ( FSCS ) this independent body is regulated by the FSA and promises that in the event of a bank collapsing you would get some or depending on how much you have all of your money back. This covers everyone no matter what your age.
Currently the scheme will pay £50,000 per person on any institution collapsing after the 7 October 2008 ( this was increased from £35,000 )
For failings before the 7 October but after the 1st you would receive 100% of the first £2000 and 905 of the balance.
If you and your spouse have a joint account with savings in the limit is doubled and you are treated as two individuals. For example if you have £100,000 in a joint savings account and the bank fails you would get all of it back. But if you or your spouse had any funds in another account with the same bank you would lose that. So its worth thinking about where you have money saved and how much you have.
You also need to remember that in the event of a bank collapsing that you have both debt and savings with the amount owed would-be deducted from any compensation you received. his is not such a bad thing as financially you are not any worse off you have just had a decision on what you do with your money taken away from you.
It is also worth noting that the FSCS ensure banks adhere to this system but Building societies are not bound by the same rules. So its worth checking the rules anyway if you have debt and savings with the same institution.
The other fact to consider is the FSCS pays out for each company independently registered with the FSA, but over the years many banks have merged or been taken over so it is increasingly difficult to know what actually counts as a Financial Institution. For example if you have money in the Bank of Scotland and the Halifax you would only be entitle to receive on amount of £50,000 as HBOS counts as 1 institution where as RBS all separately protected. There is a really useful table on the web-site moneysavingsexpert.com
Whats not covered
It's really important to understand that the scheme only protects savings that are held in organisations regulated by the FSA - remember the Christmas Savings scheme Farepak and the awful impact that had when it failed last year - that is a really good example of a savings scheme not protected.
The main protected savings are Bank and Building Society accounts and cash ISA's.
You need to remember that investing is different that involves risk so make sure you double check.
What if my money is in a foreign bank?
It is quite surprising when you delve into this world to see how many of our high street names are owned by foreign banking organisations the most well known being the Abbey is owned by Santander, they have also just acquired the Nationwide. But did you know egg is owned by Citicorp, First Save is owned by the First Bank of Nigeria ?
The important thing to check is that they are fully UK regulated subsidiary as then you would be entitled to the same protection as talked about previously - £50,000 maximum covered .
However some European banks do not count as UK subsidiaries and therefore have opted for a slightly different scheme called the passport scheme this allows for some of the compensations to be covered by their home country and the rest by the FSCS.
What this means is that if any of these banks ( Bank of Cyprus, ING direct ) went bust the majority of the money would have to come from a foreign compensations scheme, though its very possible you would still claim through the UK system, but ultimately you are dependant on the foreign government.
My money is in Icesave -will I get it back ?
This is what resulted in all the problems for those who had money with ICesave, the parent bank was nationalised and the Icelandic government said it would not honour the European agreement and the UK government had to step in to ensure UK savers were also protected .
Is the FSCS able to cope - do they have enough money?
They don't have a stash of money sitting somewhere ready to pay out when needed - what they have is the power top operate a compulsory levy on banks insures etc. as and when money is needed. - so the banks and Financial institutions have to cough up when one of theirs goes bust - there is a cap on how much cash the FSCS can levy £4 billion an we know its nowhere near enough if one of-the big boys went under. But luckily this is where the government would step in.
What can I do to protect my money 100%?
The basic rule of thumb is spread your cash around and in todays current climate and the sealing on compensation at £50,000 don't put more than that with any one institution. also if you are worried about funds -maybe this is a good time to use savings to clear any debt you may have ( the interest you pay on debt will be higher than any in a savings scheme ) or if you can over pay on your mortgage.
There are two banks that offer 100% safety Northern rock and NSI - these are 100% owned by the government so all savings are 100% GUARANTEED
Also the Irish government has made a commitment to protect all savers money until 2010 so the post office bank is a good bet
Or you are self employed you can pay your tax early..................... deafening silence out there but at least your money would be safe !
Remember that security will ultimately sacrifice your return
Disclaimer
All Information on this site 'free-bank-ratings.com' is for information purposes only and not intended to constitute professional advice as circumstances will vary from person to person. Information will not always be up to date and therefore cannot necessarily be relied upon. We strongly advise professional advice is sought before making financial decisions.