Q&A: Are my savings safe?

£5 notes The FSCS is launching a publicity campaign to highlight the new £85,000 limit

The crisis at Northern Rock in 2007 brought into sharp focus the question of how safe our savings are.

A compensation system had been in place for some time to protect people's money, but it did not prevent savers worrying and queuing to withdraw their cash from Northern Rock.

Since then, the UK's compensation scheme for savers in bust banks, the Financial Services Compensation Scheme (FSCS), has been strengthened several times.

And as of 31 December 2010 it now offers full compensation up to £85,000 per saver, per authorised institution.

Who is covered?

The new higher limit offers compensation to anyone who has money in a UK authorised bank, building society, credit union or friendly society that goes bust.

On the assumption that the insolvency stopped you getting your money out in the normal manner, you would be invited to apply to the FSCS for compensation.

What is an authorised institution?

Any savings institutions should be formally authorised by the FSA to hold your money. If it is not, it is operating fraudulently.

How quickly would I get my money?

The plan now is that most savers will receive their compensation within seven days, and the remainder of them within 20 days.

We have got a joint account, so how much is protected for us?

As before, holders of joint accounts are both eligible for compensation in their own right. So, a payment of up to £170,000 may be made in relation to a joint account.

What if I owe the bank some money - for instance a mortgage?

Your debt to the bank will still exist and you will still have to repay it - the loan will not evaporate just because your lender has gone bust.

Any money owed to you by the bank, e.g. in a savings account, will be paid in its totality - up to the new limit.

Previously it would have been offset by any sum you owed to the savings institution.

What happens if I have money in different accounts, with the same bank?

Firstly, there is only one chunk of compensation per saver, per authorised institution.

So if you have two or more accounts with one bank your compensation limit will not be greater than for someone with just one account.

This is a more complicated issue, though, if you have money in two or more banks with different names.

If they are all part of a wider banking group, or one of its divisions, which has just one overall FSA authorisation, then you will still be eligible for only one chunk of compensation.

If, however, the banks holding your money have separate authorisations, despite being part of a larger group, then you will still be able to claim compensation per bank, regardless of the fact that they may all be owned by one giant institution.

Which banks have one group authorisation and which do not?

You can check whether an institution is authorised at a group level or as a separate entity by checking the authorised firms register on the Financial Services Authority's website.

This specifies the biggest authorised deposit takers and the different names and bank brands that they cover.

For example, if you have £85,000 saved with Barclays and £85,000 with HSBC Bank, all of this would be protected.

However, if you have money in accounts with two different brands within the same authorised institution, then only £85,000 is covered.

An example would be having two accounts, one with Barclays and one with Standard Life Bank, as Standard Life Bank has been part of Barclays since the start of 2010 and is covered by Barclays' authorisation.

On the other hand, Lloyds TSB and Bank of Scotland have separate authorisations, despite both being part of the wider Lloyds Banking Group.

If you are still unsure, you can contact the FSA consumer helpline on 0845 606 1234.

I run a small business, what about me?

The FSCS deposit protection scheme covers small businesses. To qualify they have to meet at least two of the following conditions. They must:

  • have annual turnover of less than £6.5m.
  • have a balance sheet of less than £3.26m.
  • have fewer than 50 employees.

Larger businesses are excluded from the scheme, except in relation to claims made under a compulsory insurance policy.

This might be where a company makes a claim but the insurer fails to pay out, or if premiums have been handed over but not in fact used to buy a valid policy.

What is the situation in the Irish Republic?

See our guide to Irish Republic finances: Are my savings safe?

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