Billions of pounds have been pulled out of savings accounts with high street banks and building societies in recent days after renewed turmoil in the financial markets caused panic among savers.
Most UK savings institutions are signed up to the Financial Services Compensation Scheme (FSCS) which in the event of the provider going bust protects the first £50,000 of a customer's money. Joint accounts get double the protection so £100,000 is totally guaranteed.
However, there are signs that this isn't enough to calm the nerves of savers who are concerned about the security of their money following the recent crises at Halifax Bank of Scotland and Bradford & Bingley. Money has been pouring into accounts with institutions that offer total protection of savers' money.
Here in the UK there are two providers that offer such guarantees because they are backed by the Government - National Savings & Investments and Northern Rock. This unlimited protection has resulted in a surge in demand for Northern Rock savings accounts in the past few weeks, but competition rules state that its savings book must not exceed 1.5% of the country's retail deposit balance. Consequently, the bank has been forced to withdraw many of its products from the market as it nears its cap.
Accounts that have been pulled include the e-saver which was paying 5.75%, the Fixed Rate Access Bond at 6.0% and the Silver Savings account which was paying 5.65%. The decision to withdraw these products does not affect existing customers - it just means that they are not open to new applications.
Other beneficiaries for the stampede for total protection are the Irish banks such as Anglo Irish and Bank of Ireland, which provides The Post Office's savings accounts. Demand for their products has surged after the Irish Government announced that it would guarantee all deposits held in six Irish banks and building societies until September 28 2010 - the previous protection limit was €100,000 (around £78,000).
Kevin Mountford, head of banking at moneysupermarket.com, said: "There's been a rush for accounts that offer total protection if the provider goes bust, and while savers' concerns are understandable in the current climate, there is no need to panic. If you have a large amount of money in cash savings, opting for an account with an Irish bank or NS&I is one option, but you can also guarantee all of your savings and stay with UK banks, by spreading your money around between different institutions."
So where can you put your money?
If you have a large amount in savings and don't want to spread your money between different institutions, the obvious accounts to consider include Anglo Irish Bank's Easy Access Issue 2 deal which is paying 6.40%. Alternatively, The Post Office's Instant Saver has a rate of 5.75%.
However, if you have less than £50,000 in savings or are prepared to spread your money between different UK institutions, you can earn a higher return. The Alliance & Leicester eSaver account is paying a market-leading 6.60%. This rate is available on balances above £1 although, with the exception of July, you do not earn interest in any month a withdrawal is made. This is therefore not the best account if you will be dipping in and out of your savings.
There are other highly competitive deals though including West Bromwich building society's Stratus No Notice Account which pays 6.56% on balances above £1,000. Kaupthing Edge's Instant Access Savings Account has a rate of 6.55%, while Birmingham Midshire's e-Saver Account (Issue 2) is paying 6.52%.
Other accounts paying 6.5% or more include Heritable Bank's Online Saver, Manchester building society's Premier Bond Issue 3, ING Direct's Savings account, Tesco Personal Finance's Internet Saver and Abbey's eSaver Direct.
The key thing to remember, if you have more than £50,000 in savings is that the FSCS protection applies per institution, not per account. Therefore there is no point in having more than one account with the same provider as only £50,000 is guaranteed. However, if you split it between different providers, you can benefit from the full £50,000 with each one.
You need to watch out for institutions that have a single registration with the Financial Services Authority (FSA) but offer savings accounts under a number of brands as you only benefit from a single £50,000 protection allowance. For example, Halifax, Bank of Scotland, Birmingham Midshires, Intelligent Finance, The AA and Sage are all registered as HBOS so you should have an account with only one of these providers. Similarly Abbey, Bradford & Bingley and Cahoot are all registered as Santander.
All the accounts listed above have separate FSA registrations so if you have a large amount in savings, you could split it between any of those accounts and benefit from the full FSCS protection with each.
For information about which institutions are registered with the FSA and which brands come under each registration, read our article, 'Who owns who'.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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