It was unthinkable that a bank could go broke – once. The queues outside Northern Rock branches put a stop to those assumptions.
Since then the UK Government has rescued the Royal Bank of Scotland – including Ulster Bank – the Lloyds Group – including Halifax and Bank of Scotland – and Bradford & Bingley, as well as Northern Rock. The Irish Government nationalised Anglo Irish Bank and rescued Bank of Ireland and Allied Irish Banks (which owns First Trust).
So what should you do to keep your money safe?
Shareholders are the losers
The people in the UK who have lost money in the banks’ collapse have been the shareholders – which actually means lots of us, because our pension funds owned many of the banks’ shares.
But people who had money in savings and current accounts in the UK and the Irish Republic have had their money protected. Even the individuals who saved in the Icelandic banks are getting their money back.
Protection schemes guarantee much of our savings. The UK’s Financial Services Compensation Scheme (FSCS) provides a 100% guarantee for all savings in UK banks and building societies up to £50,000. This scheme applies to UK banks that are fully Financial Services Authority (FSA) authorised and regulated – including Northern Bank and First Trust Bank.
The Bank of Ireland is not part of the UK scheme, but instead has a 100% guarantee from the Irish government. This also applies to accounts taken out with the UK Post Office – whose bank accounts are actually run by the Bank of Ireland. Some people are concerned about this as the Irish government has had its credit rating downgraded – but Dublin insists it is able to meet the guarantees were this to be necessary.
UK compensation arrangements are complex and difficult to understand. There is a £50,000 limit, per person, per institution. But it is not always obvious what is regarded as a single institution.
RBS owns several bank brands, including Ulster Bank and NatWest. Each of these three is separately authorised and has a separate compensation limit of £50,000.
But some RBS brands are authorised as part of RBS. The £50,000 limit for RBS is shared with Direct Line savings accounts and The One Account. The same is true of HSBC and its First Direct brand. To be fully protected by the £50,000 limit, savers must have no more than this in all the accounts offered by a single authorised institution.
To find out which bank brands are regarded as ‘linked’ for the purposes of the compensation scheme it is necessary to visit part of the FSA website – www.moneymadeclear.fsa.gov.uk/pdfs/linked_deposits.pdf. The ‘linking’ of deposit protection across apparently different banks is very unsatisfactory.
The safest institutions
National Savings & Investments is a government agency and money saved with it is fully guaranteed. National Savings products include premium bonds and a range of savings and investment accounts and bonds.
The Government has also issued a 100% guarantee to savers in Northern Rock: the bank is committed to giving three months’ notice if this changes. Although RBS is mostly government-owned, the same guarantee does not apply: savers’ protection is limited to £50,000.
Northern Ireland credit unions are not covered by the Financial Services Compensation Scheme – though this may change. (British credit unions are covered by the FSCS.) Credit unions here are covered by one of two deposit protection schemes run by the credit union movement.
Credit unions that are members of the Irish League of Credit Unions are covered by a protection scheme that can pay up to £10,000 per saver. Credit unions belonging to the Ulster Federation of Credit Unions have 80% cover for deposits, without there being a maximum. Both schemes are discretionary, but ILCU and UFCU intervene at an early stage if unions are in difficulty and have prevented any from closing.
Play your cards right
Best credit cards
Tesco PF Clubcard Mastercard 0% for 12 months
M&S Money Mastercard 0% for 10 months
Lloyds TSB Advance Mastercard 0% for 6 months
Best savings account
Progressive Building Society 2.75% for £500, postal 7 days notice
Best Cash ISA
City of Derry Building Society 2.25% at £1,000; 3% at £50,000
Five year fixed rate mortgages
Chelsea Building Society 4.50%*
Ulster Bank 4.65%*
Bank of Ireland 4.99%*
Progressive Building Society 5.50%*
(* Conditions apply)
Supplied by Moneyfacts – www.moneyfacts.co.uk