How to protect your savings
You’ve worked hard for your money, so you need to be certain it will be safe wherever you choose to put it
Key takeaways
The FSCS is a UK deposit guarantee scheme that acts as a financial safety net by compensating for lost money due to a provider’s failure or poor financial advice
If a bank fails, the FSCS automatically compensates up to £85,000 within 7 days
Be aware of accounts that aren't protected by the FSCS
Monitor your savings growth to stay within the protected threshold
Since the 2008 banking crisis, when a number of household-name financial institutions collapsed, Britons have been more wary than before about where they stash their savings.
The good news is that there are robust safeguards in place to protect savers' money, offering peace of mind in an otherwise uncertain financial landscape.
Is my money safe in a savings account?
If your money is held with a UK institution which is regulated by the Financial Conduct Authority (FCA), then you will have access to the Financial Services Compensation Scheme (FSCS) in the event that something goes wrong.
This means that money in UK institutions regulated by the FCA is protected by the FSCS, providing a safety net for your hard-earned cash.
Under the FSCS, the first £85,000 (as of January 2017) a depositor puts into their account (or £170,000 if your money is held in a joint account) is protected in the event that the bank or building society goes bust.
This coverage is crucial for individual financial security and ensures that savers can trust in the stability of their chosen financial institutions.
Remember that the £85,000 compensation limit applies per institution and not per account.
That means if you have, for example, £50,000 in an easy access account and £50,000 in a fixed rate bond, both held with the same bank, you’d stand to lose £15,000 in the event that the bank went bust because your deposit protection limit is a total of £85,000.
Therefore, it's wise for savers with substantial savings to avoid holding more than £85,000 in any one bank to ensure full protection under the FSCS.
What is the Financial Services Compensation Scheme?
The FSCS is a UK deposit guarantee scheme that acts as a financial safety net, protecting cash if a financial institution fails.
It's an essential service that compensates for lost money due to a provider's failure or poor financial advice.
Knowing that there is a system in place to protect your investments can provide significant reassurance in times of economic uncertainty.
Which savings accounts are protected by FSCS?
The FSCS covers a wide range of savings accounts and products, ensuring that most types of savings are secure. These include:
Savings accounts
Sharia accounts
Cash ISA
Lifetime ISA
Help to Buy ISA
Some guaranteed equity bonds
Money saved within a SIPP pension (though it's advisable to check with the provider for specifics)
How to make a claim if my bank goes out of business?
In the unfortunate event that a bank fails, the FSCS automatically compensates up to £85,000 within 7 days.
However, if this doesn’t automatically happen, then you can make a claim directly to the FSCS.
This process is designed to be as smooth as possible, minimising stress during what can be an anxious time for depositors.
Are my savings at risk when I use different banks?
It's important to note that savings in different banks could be at risk if the banks share the same banking license.
For example, Halifax is part of the Bank of Scotland group, and Post Office Financial Services and AA Financial Services are part of the Bank of Ireland Group.
Banks with shared licenses mean protection is still limited to £85,000 across all brands, not £170,000.
Therefore, it's crucial to check bank ownership to understand the levels of protection for savings over £85,000.
Which savings accounts aren’t protected by FSCS?
While many accounts are covered, there are some exceptions to FSCS protection:
Savings stamp schemes
Christmas hamper clubs
Paypal accounts
Prepaid cards
Loyalty points
Are my NS&I savings safe?
For those who have invested in National Savings and Investments (NS&I), the good news is that NS&I savings are fully protected as it is government-backed. This means that your investments with NS&I are secure, regardless of how much you have saved.
What can I do to protect my savings?
When it comes to protecting your savings, there are several steps you can take to ensure your money is secure.
FSCS Protection
Firstly, make sure that your bank is FSCS protected. You can check FSCS protection on their website here. This will give you the confidence that your savings are covered up to the £85,000 limit.
Online banking
Online banking is incredibly convenient, but it requires a level of caution to maintain security. Here are some tips for safe online banking:
Create unique passwords for each banking site.
Use strong passwords that are difficult to guess.
Never share your full passwords or PINs with anyone.
Regularly check your balances and transactions for any discrepancies.
Always log out after your banking sessions.
Avoid using public computers for banking activities.
Keep your personal details up to date with your bank.
Use secure Wi-Fi networks for online banking, avoiding public networks.
Further information about protecting your savings
In times of a cost-of-living crisis, budgeting carefully is more important than ever. Building a robust savings pot is crucial, and with interest rates improving, it's a good time to ensure your savings are working hard for you. However, it's also vital to protect your savings from potential bank failures.
Can my interest rate send me over my compensation limit?
It's worth noting that interest can push your savings over the £85,000 limit, which could put your compensation at risk. Keep an eye on your savings growth to ensure you remain within the protected threshold.
What happens if I exceed the £85,000 protection limit?
For temporary high balances over £85,000, such as after selling a property or receiving an inheritance, the FSCS offers protection for six months.
For ongoing large balances, it's advisable to seek advice from a personal finance specialist to explore the best options for safeguarding your funds.
Compare savings accounts with MoneySuperMarket
MoneySuperMarket offers a comprehensive range of savings accounts to suit various needs and financial goals. When choosing a provider, ensure they are FCA regulated to benefit from full FSCS protection, giving you the confidence that your savings are secure.
In a financial world that can sometimes feel precarious, understanding the protections in place for your savings is more important than ever. By staying informed and taking proactive steps to safeguard your money, you can navigate the complexities of personal finance with greater assurance.
