You have a 100% guarantee on the first  £50,000 of any deposit in the UK. Or do you? If you have deposited with a foreign bank and they have opted to register with the Financial Services Compensation Scheme (FSCS) on a "top up" basis your compensation is through their home country first & then topped up to the compensation level in this country.
The trouble with this is that you have to claim first through the foreign compensation scheme. If we look at the case of the Icelandic banks who have dominated the headlines recently, their government simply reneged on the deal. Countries have different levels of compensation. Dutch bank Ing, which has taken over the savings accounts of Kaupthing Edge and Heritable Bank is covered by its local compensation scheme. This offers a guarantee of up to 100,000 euros, around £77,000.

This is better than the UK’s FSCS £50,000 maximum; the big question, in a total financial meltdown that ended up in a destroyed Ing, (Holland’s largest bank), would the Dutch government be able to honour the guarantee. We just can’t tell. This is especially pertinent with Dutch authorities providing €10billion to ING over the weekend (18/19 Otober 2008) in return for a share in the bank. If your money is deposited with a European Bank the European authorities have increased blanket protection to €50,000 – not as good as here but better than the previous level of €20,000.

The Post Office offer savings through Bank of Ireland where, in a financial meltdown you are likely going to have to claim from the Irish authorities. Ireland's emergency blanket guarantee covering all deposits for its six banks amounts to $576bn, nearly three times gross domestic product, $130,000 per head or $200,000 per person in employment. How affordable is this? What is the position with other foreign banks such as Indian bank ICICI, whose Hisave account has been in the best buy tables? Its share price has plunged. Fortunately ICICI bank is authorised by the Financial Services Authority and is also a member of the FSCS so there is a guarantee of up to £50,000. Also in the best buys is AK Bank. The bank is authorised and regulated by De Nederlandsche Bank, the Dutch central bank. Like the Icelandic banks, it is registered with the FSA through the ‘passport scheme’, which means you will have to claim first through the Dutch compensation scheme if the bank were to fail.

Santander, which now owns Abbey and Alliance and Leicester are registered with the FSA in this country. Before the rescue of B&B, savers with an account at B&B and an account at Abbey would have had £100,000 of protection. B&B’s savings book has been sold to Santander so the two brands now have a single FSA registration, which means that you only have £50,000 protection in total. “. . .


If the current instability worsens it may put pressure on the price of the UK compensation scheme. UK institutions could have to find more to underwrite the FSCS. As consumers we will ultimately pay for this through higher financial services costs.  

There are important distinctions if you are checking on a bank with the FSA. Firms that are regulated by the FSA under the Financial Services & Markets Act 2000 (FSMA) are covered by the FSCS for up to £50,000 maximum. But those that are registered under the Money Laundering Regulations 2007 are not authorised firms and are not covered by the FSCS or the Financial Ombudsman Service.

Do you know which bank is behind some of the supermarket & affinity group schemes & which brands are operated by which banks? Saga & the AA were recently top of the best buy tables with fixed rates that have since been discontinued but were underwritten by Birmingham Midshires, a subsidiary of HBOS. HBOS offer savings accounts under the Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance brands. It has a single registration with the FSA which means that if you have a savings account with Halifax and another with Birmingham Midshires, only £50,000 is protected.

Some institutions operate a number of different brands; you need to know whether all brands are registered separately with the FSA or whether there is a single registration for the entire group. If it is the latter, you will only have £50,000 protection across all that institution’s brands. Royal Bank of Scotland and NatWest, which are both part of the same group, are registered separately with the FSA, so you could have a savings account with both, giving you £100,000 of protection. Call 08456061234, the FSA Consumer Contact Centre or go to http://www.fsa.gov.uk/pubs/list_banks/2008/sep08.pdfto check whether a bank is registered with the FSA.

The FSCS guarantees the first £50,000 or £100,000 for a joint account. This protection applies per institution, not per account, so if you have more than £50,000 with any one bank or building society it may well be worth spreading your money between providers.

We still do not know what further toxic waste is hidden on banks balance sheets from deals previously completed. For safety it could make sense to look at good old fashioned building societies; purely due to their status they have not been allowed to play with the big boys in the wider market so their balance sheets should be cleaner. Check though where they have previously been lending as the Cheshire and Derbyshire Building Societies recently merged with the Nationwide due to bad debts. If you are pessimistic about the short term future of the financial markets then your other safe haven is National Savings – their rates aren’t the most attractive but they are offered by UK Government.

The bail out packages from the worlds central banks of the last couple of weeks still aren’t providing liquidity for the banking system – it takes time of course for these deals to filter through & have impact. If over the coming weeks there still seems to be no reduction in LIBOR (London Interbank Offered Rate, the rate of interest at which banks borrow funds from each other) there could be further turmoil. LIBOR is running up to 2% above Bank of England base rate indicating that the banks are still not trusting one another and that there is still no liquidity in the Interbank market – the wheels that keep the real economy turning with the circular flow of money. It’s not time to panic – but take extreme care.  

This article was supplied by Ivor Kellock, Kellock Wealth Management, 4 Thirlestane, St Albans, Herts AL1 3PF Tel: 01727 870613, http://www.kwm.cc/