press release

UNDER the mattress never was the best place to keep hard-earned savings, but following the Northern Rock crisis, savers should think twice about how safe their money really is in a bank, says online financial data comparison site Moneynet.co.uk.

At the time of the Northern Rock calamity, which saw savers literally queuing round the block to withdraw their money, the Chancellor and the Bank of England were at pains to reassure people that their money was safe and that there was no need to panic.

But was the public’s reaction just mass hysteria or was it a sensible response justified by the shortcomings of the protection offered by banks and building societies?

“Firstly, it is extremely rare for a bank or building society to get into such difficulties,” says Moneynet.co.uk chief executive Richard Brown. “The last bank to collapse in the UK was Wimbledon & South West Finance which went under in 1994, leaving its 2,500 savers to claim through compensation schemes. But that won’t be much comfort if your institution goes into freefall, taking your life savings with it.”

So what safeguards are there? First port of call would be the Financial Services Compensation Scheme (FSCS) which, as a result of recent events, has upped the payout ceiling to £35,000 per institution. This rule applies to individuals so money in a joint account effectively receives double protection.

But £35,000 isn’t a huge amount these days and any savings exceeding this figure would be completely unprotected – a disastrous scenario for someone who, for instance, has retired upon the proceeds of a property sale.

“The most sensible thing to do is to share your money around so that you don’t have all your eggs in one basket,” says Brown. “However, this is easier said than done as many banks operate under various brand names.”

Halifax and Bank of Scotland (HBOS), for instance, are not only the same organisation but also own IF, Birmingham Midshires, Sainsbury’s Bank and AA savings.

As HBOS has authorised all of these with the Financial Services Authority as brand names of HBOS rather than separate entities, each organisation would count as being with the same bank, meaning that the £35,000 protection limit would apply to total savings with all of these brands. In other words, someone with £30,000 with AA savings and £30,000 with Birmingham Midshires, would have £25,000 of their money completely unprotected.

It’s possible to avoid duplicating accounts with banks that are registered with the FSA under the same authorisation by checking the details given on their websites or checking the FSA register at www.fsa.gov.uk.

Another viable solution is to invest in National Savings & Investments (NS&I) which, although not always the best in terms of returns, does have the advantage of Government backing and is therefore several degrees safer than a bank or building society.

NS&I’s Direct ISA currently offers a very attractive 6.30% AER or there’s the option of taking a chance with Premium Bonds which allow instant access plus the chance to win up to £1 million tax free every month.

“Amid scenes of horses and stable doors, the Chancellor has announced further plans to strengthen the protection offered to savers, which is welcome news,” says Brown.

“However, to offer the proposed guarantees of up to £100,000 of savers’ money, new legislation will be required following a period of consultation with the banks, meaning it will be some time before savers can be absolutely sure that their money is secure.

“Front page news changes every day and those unaffected will no doubt soon forget about Northern Rock but whilst lightning is very unlikely to strike twice, it’s not impossible,” he concludes. “I would advise anyone with savings to double check that they are not at risk of losing it all in a repeat scenario.”

* BBA/BSA data, April 2007