It depends on where your money is held. If it is in a deposit account, you are entitled to compensation from the Financial Services Compensation Scheme (FSCS) up to £35,000. If your money is held in investments such as stocks and shares Isas, the compensation entitlement increases to £48,000, or 100 per cent of the first £30,000 and 90 per cent of the next £20,000.
The compensation limit for long-term insurance contracts, which include pensions, is unlimited, protecting 100 per cent of the first £2,000 and 90 per cent on amounts above that. Some investments, such as unit trusts, are "ring-fenced", so if the company goes bust, it loses money, but yours is fully protected. The category that an account or policy falls into should be in the terms and conditions of the contract. If you are not sure, call the FSCS on 020 7892 7300.
Am I covered for more than £35,000 if the money is spread between different banks?
Since the run on Northern Rock, the golden rule has been to keep no more than £35,000 with any one registered institution. The key word here is "registered", as many banks are owned by one parent group and registered under the same name. For example, Intelligent Finance is registered as HBOS. If the banks you hold money in are separately registered with the Financial Services Authority (FSA), you will be entitled to £35,000 from each. However if they are registered under one name, you will only be covered for up to £35,000 in total. To check whether your bank is independently authorised, call the FSA on 0845 606 1234.
My bank is being taken over. Will that affect my compensation entitlement?
It depends on the takeover. Lloyds TSB and HBOS have not yet decided whether the two brands will remain separately registered. Santander has confirmed that Alliance & Leicester and Abbey will be authorised separately, meaning that savers with up to £70,000 spread between both will be fully covered. However, the Derbyshire and Cheshire building societies will be subsumed under the Nationwide umbrella, so anyone with more than £35,000 in these societies might want to move excess cash elsewhere.
I have savings and borrowings with the same bank. Can I still claim compensation?
Anyone who has borrowings and savings with the same bank would not be entitled to compensation if their debt is bigger than their savings balance. For instance, if you had a mortgage for £100,000 and savings worth £25,000, you would be "ineligible" for compensation, and you would end up owing £75,000.
Equally, if you had £20,000 in savings and a £10,000 loan, you would receive only £10,000 in compensation. Offset mortgage borrowers take note: you are still protected only up to £35,000.
I have money in a joint account. What happens?
You could receive up to £70,000, or £35,000 per person. In the event of a claim, each account holder would receive a cheque for half the compensation, unless they ask for just one cheque.
I have a small business account. Do the same rules apply?
Yes, as long as you meet two out of three conditions: that your total turnover is less than £6.5 million, that your balance sheet is lower than £3.26 million and that you do not have more than 50 employees. Larger businesses are excluded, although there are some exceptions to this for deposit and insurance claims.
Are the rules different for foreign banks?
UK subsidiaries of foreign banks registered with the FSA are covered in the same way. These include Firstsave, ICICI and Kaupthing Edge. Some European banks including Anglo-Irish, Icesave and ING Direct have compensation schemes that are partly funded by the home country then topped up by the FSCS. Savers would have to apply to the foreign scheme first. The Treasury Select Committee called for compensation claims from foreign banks to be made easier earlier this week.
Is anywhere 100 per cent safe?
Yes. National Savings & Investments, the government-backed savings institution, fully protects deposits with no maximum limit. Northern Rock also offers savers full protection now that it is nationalised.
How do I move my savings from one bank to another?
First, check best-buy tables for the best interest rates available. When you have selected your new account, check the terms on your existing account, as some require notice before a withdrawal, or levy a penalty. To close the account, ask for a withdrawal form at a branch or on the phone. If you have an online account, you can transfer the money to your current account yourself, although most banks require written notice that you wish to close the account. To open a new account, you will need to show the new bank proof of identification and address. Once open, you can arrange to transfer the money from your current account.
If no UK retail bank has ever gone under, is it worth all the hassle?
After the Northern Rock debacle, there is very little chance the Government would allow a bank to collapse, as its efforts to rescue HBOS proved. Most are not in trouble, and would be at risk only if customers began collectively withdrawing their money. However, it is a good idea to spread your money anyway. Keeping below compensation limits will give you extra peace of mind.
data Sourced from www.timesonline.co.uk
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