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Are UK Banks & Building Societies Safe ?

By David Goodall - Thu 13th Oct 2011

In July 2011, the EU announced the names of the eight banks which failed the ’stress tests’ to measure how each institution could copy with a challenge to its liquidity, Of those 8 who failed none of them were British. Unfortunately, five of them were Spanish.

The failed Spanish banks were : CAM Bank; CatalunyaCaixa; Unim; Caja Tres and Banco Pastor

Further Bank were told that they had 'barely' passed the tests, which were : Bankinter' Banco Sabadell; Banco Popular; NovacaixaGalicia and Caja Ontinyent.

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On 7th October 2011, Moodys, the credit ratings agency, downgraded four UK Banks and eight building societies. This, of course, is not the same as the EU stress tests but it does shake confidence.

The downrated banks were : RBS, Lloyds Banking Group, Santander (UK) and Co-op Bank. The downgraded building society was the biggest, Nationwide.

My Blog - Financial Pages in Spain - provides financial information for British and Irish expats and property owners in Spain. As such many will have savings in UK financial institutions and this post is to help readers to put their minds at rest and potentially, move savings in an orderly way.

There are five important pieces of information you need to know :

1.) Every UK REGULATED account has 100% protection up to £85,000

Protection comes from the Financial Services Compensation Scheme (FSCS) which is Government backed. It covers savings in current accounts, savings accounts and cash ISA’s in banks, building societies and credit unions. The £85,000 maximum is per person per institution. Although you get your protected money back, the timescale is not pre-determined.

2.) UK savings are not necessarily UK REGULATED

Most banks, included foreign-owned ones, are regulated and covered by the FSCS scheme. So for example, Santander (UK) is Spanish owned but UK regulated. Some however are not. These include ING-direct and Anglo-Irish who are regulated in their home EU countries and ‘passported’ into the UK. I may be able to clarify an individual arrangement if you contact me (by clicking link above)

3.) If the accounts are held in joint names, the protection is DOUBLED

Cash held in joint names is deemed to be held on the basis of ‘half-each’. Therefore, a UK regulated account, with one institution but in joint names has protection of £170,000. Remember to accumulate the total if you have, in addition, a single name account with the same institution.

4.) An Institution is not necessarily a single bank and is not a single account

The protection is per institution and not per bank or per account. For example, Birmingham Midshires, Bank of Scotland and Halifax are all ‘sister’ banks within one institution. You need to accumulate your cash with each to ensure that you are under the £85,000 protection maximum.

5.) Savings are more safe if they are spread

For the best protection, first, understand ‘who owns who’ so that you don’t unwittingly save too much with one institution.

Even if you have less than £85,000 saved, its still worth considering ‘speading’ as if one went out of business it will take time to gain accessibility.

Most important of all, to quote a well-known saying ‘Don’t panic Mr Mainwaring don’t panic’. There is no indication that these Institutions will ‘go bust’ but there is a need to protect your own savings. In fact, please tell your family and friends.

Trivia Question : Which is the only country in the EU to offer 100% investor protection ?

Answer : Luxembourg

If you have any questions or comment, please either post them blow or contact me by clicking the above link through to my own website.

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