How to Protect Your Life Savings from a Failing Bank

How to Protect Your Life Savings from a Failing Bank

by Iain Maitland on 28 Jan, 2011

Remember Northern Rock? It’s not so long ago that savers were in a blind panic about failing banks and lost savings. People queued for hours around the block to withdraw their money.

From the start of 2011, your savings are protected up to a total of £85,000 under the government-backed Financial Services Compensation Scheme (FSCS).

Money in UK-regulated, current and savings accounts, cash ISAs and other savings products are covered. If a bank fails, you’ll get back up to £85,000 per person per financial institution. It seems straightforward but there are some factors to take into account.

Is It Regulated?

The Financial Services Compensation Scheme (FSCS) covers those organisations that are regulated by the Financial Services Authority (FSA) in the UK.

Most banks operating in the UK are UK-regulated, but not all. Some EU-owned banks such as ING Direct and Anglo-Irish are part of what’s known as a ‘passport scheme’. In effect, you are protected by the bank’s home government.

You need to know whether your bank is regulated. Check with the Financial Services Compensation Scheme, 7th floor, Lloyds Chambers, Portsoken Street, London E1 8BN. Tel: 0800 678 1100. Fax: 020 7892 7301. Email: enquiries@fscs.org.uk. Website: www.fscs.org.uk.

The £85,000 Limit

The £85,000 figure is per person. If you have three accounts in one institution, the protection is £85,000 across all of them, not £85,000 per account.

If you have a joint account, the total savings will usually be viewed on a 50-50 basis. You have cover between you totalling £170,000. Be aware that if you then have a separate account with that bank, the savings above that £85,000 are not protected.

Consider you and your partner have £150,000 in a joint account and you have £20,000 in a separate account. If the institution ceased trading, £75,000 of your £85,000 cover would protect your joint account savings. The remaining £10,000 cover would leave half of your separate £20,000 savings at risk.

Is It An Institution?

The FSCS protection covers £85,000 per institution. An institution and a bank are not automatically one and the same. The definition of an institution depends on the often complex wording of its licence. The Halifax, Bank of Scotland and Birmingham Midshires are all part of the same ‘institution’, the HBOS group, and your total cover is £85,000 across the institution. Yet, because of the wording of the licence, the RBS conglomerate of the Royal Bank of Scotland, NatWest and Ulster is such that you get separate £85,000 protection for each.

Note too that any savings held offshore in a non-UK bank are normally regulated by the relevant local financial authority rather than the FSA in the UK. Check before investing. For example, the FSCS does not cover savings in the Channel Islands or Isle of Man.

Bottom Line Advice

If you have more than £85,000, play safe by spreading it across more than one institution. It can be a good idea to spread less than £85,000 anyway. In the event that an institution fails, it may take a month or so to receive compensation.

Note that the amount protected has changed three times, following the Northern Rock and Bradford & Bingley issues and, most recently, to bring the UK into line with Europe. If you are currently seeking compensation, the limit will depend on the timing of the ‘compensation trigger’. Defaults between 7 October 2008 and 30 December 2010 mean you should receive the first £50,000 per person per institution. Defaults between 1 October 2007 and 6 October 2008 are covered 100% up to the first £35,000. With defaults before 1 October 2007, you’d get 100% of the first £2,000 and 90% of the next £33,000.

About the Author

Iain Maitland


Iain Maitland runs the free property news services, UK and International Property Alerts, at www.ukpropertyalerts.co.uk and www.internationalpropertyalerts.co.uk. He is the former editor of Fleet Street Publications’ Personal & Finance Confidential. His courses include Successful Investing (Regent Academy) and The Maverick Investor’s Home Study Course (Streetwise Publications). He has written for the Sunday Times and the Financial Times.