Are my savings safe? 5 steps to keeping your savings safe

Follow our top tips to ensure your savings are safe

Step 1: Stay within the FSCS limit

The economic turmoil of the past few years has shown that banks are vulnerable to failure. The Financial Services Compensation Scheme (FSCS) offers a safety net to savers if the risk your bank going bust becomes a reality.

If you have a savings account with a provider that is authorised by the Financial Services Authority (FSA), up to £85,000 of your savings are protected. This harmonises with the rest of Europe, which has set compensation limits to 100,000 Euros.

It’s important to remember that this £85,000 coverage is per person, not per savings account. So if you have more than this amount in savings, you should spread it around several financial institutions.

Step 2: Find out who owns your bank

The banking landscape is changing regularly – smaller firms are merging with larger competitors in a bid to stay afloat during tough financial times. The past few years have seen the likes of Lloyds TSB take over HBOS, Santander buy Abbey, Bradford & Bingley and Alliance & Leicester and The Co-operative Bank merge with Britannia.

This affects the FSCS coverage that customers would receive in the event of a crisis. Some banks, like Lloyds and HBOS, have retained their own banking licenses after merging, so you have compensation coverage from both banks. However, others have given up their separate banking licenses - meaning that you may now only have one 'dose' of coverage.

To find out who owns your bank and what FSCS coverage you have in place, see our guide to who owns who in the savings market.

Step 3: Consider a joint savings account

If you and your partner have saved a significant amount of money and you don’t like the idea of spreading it around multiple banks, consider opening up a joint savings account.

The FSCS covers £85,000 of savings per individual, per financial institution - so by placing your savings in a joint savings account along with your partner, you're effectively doubling your coverage. This means coverage of £170,000 in total.

Step 4: Be sure before you go offshore

Putting your money in an offshore savings account might be appealing as they often pay higher rates of interest - but many people had their fingers burned by the collapse of Icelandic bank Icesave in 2007.

Banks in the European Economic Area (EEC), like the Bank of Cyprus, are covered by their own domestic compensation schemes. The level of compensation that they pay is 100,000 Euros.

Those that are based outside the EEC, like Indian bank ICICI, still have to be authorised by the FSA to operate in the UK. This means they are covered by the UK’s FSCS.

Step 5: Avoid structured deposits

A new phenomenon has swept banks and building societies over the past few years – the rise of structured deposit products. These are fixed term plans, usually lasting between three and six years, that will pay you an interest rate linked to a stock market index such as the FTSE 100.

The risk with these products is that you have no idea what return you might get at the end of the fixed term. And if the stock market has fallen, you could come out of your plan six years later having earned no interest at all. This places the 'real' value of your savings at risk, as your cash will have been subject to the effects of inflation while it was invested.

Also, if you want to get your money out of a structured product before its term ends, you could face a hefty charge. Overall, these are complicated products - and Which? Money experts don’t think that savers should be placing their money in them.