If Your Savings Bank Goes Bust...
The recent 'sub prime' lending problems in the financial system have raised the spectre of major banks having difficulty trading under their existing business model, and even going under altogether. Here in the UK, at the time of writing, there's a developing panic over the future of one of our biggest banks, Northern Rock, where despite the assurances of both the company and the Bank of England about its basic solvency, customers are queuing to withdraw their savings before any feared collapse.
But what actually happens to your savings if your bank goes belly up?
The Financial Services Compensation Scheme is an independent statutory body created by act of parliament in 2000, funded by a mandatory levy on financial services companies authorised by the Financial Services Authority (FSA).
If one of these authorised companies is unable to pay claims against it, usually because of insolvency or ceasing trading, the FSCS will pay compensation in the areas of deposits, investments, insurance, and mortgage advice and arranging.
In the case of savings accounts, which come under deposits, should your bank go bust and your account balance is less than £2,000 you will get the whole of your money back in compensation.
If you have more than that in your account, then you will get back 90% of the remaining balance, up to a maximum compensation level of £31,700 per person (not per account).
What this means in practice is that if you have less than £35k in your account, you won't lose out too much if your bank goes bust - 'only' to the tune of £3-4k. However, if you have more than £35,000, you'll lose everything above that level.
Because of this, if you have high levels of savings, it's perhaps unwise it all in one place, but to spread it around in different accounts, with no more than £30,000 or so in each of them. This way, not only do you reduce the risks of your entire savings being affected by any bank closure, but if you are hit you'll lose the least possible amount.
