Protecting your savingsProtecting your savings

The ongoing credit crunch has left banks struggling to cope with bad debts and a lack of cash in the system. Most recently this has led to the emergency merger of Lloyds TSB and HBOS, the nationalisation of Bradford & Bingley and the part-nationalisation of RBS. Previously, the government had to rescue Northern Rock. 

There are ongoing concerns about the stability of other lenders as speculators look for opportunities to make short-term gains and savers move their money to bigger organisations that appear to offer more security.

But is a big bank a safer bet than a regional building society - and is a UK-based bank necessarily any more secure than one with its main offices overseas? 

While it is impossible for ordinary savers to predict how share prices will move and which banks may come under financial pressure, what you can do if you are worried is check how much statutory protection you will get from the banks and societies that are currently holding your money.

What is the Financial Services Compensation Scheme?

The Financial Services Compensation Scheme (FSCS) offers a safety net for savers and investors if their bank goes bust. Since 7 October 2008 it has protected up to £50,000 of an individual’s savings held with each authorised provider (previously the limit was £35,000).

If you have savings with a bank that is authorised by the Financial Services Authority (FSA) and it went under, you should get the first £50,000 of savings refunded to you through the FSCS. 

This £50,000 compensation includes any interest you will have accrued though, so make sure you leave some space under the limit. If you receive 5% interest for example, you should only keep around £47,500 in your account before interest to ensure you receive full compensation. 

You wouldn’t get any more by having more than £50,000 spread across several accounts with the same bank, but if you and your partner held a joint account, up to £100,000 would be protected. This is because the FSCS covers up to £50,000 per individual, per institution. 

For more expert advice about saving and making the most of your money, read the Which? Essential Guide: Save and Invest .