Credit Crisis FAQ

Things are still changing, but I'll try to keep this up to date. For more info see the forum and Martin's article.


Q1: Is my UK bank/building society safe?
Nobody can say for sure, both big and small banks have got into trouble, but the good news is that government seems determined to rescue them if it possibly can, either directly or by organising a private takeover.

Q2: What happens to my savings if nobody can save my UK bank/building society?
The Financial Services Compensation Scheme (FSCS) will cover the first £50,000 of your savings. In addition the government has hinted savers will not lose out even above that amount. For example Icesave savers were told they would be fully compensated when the bank failed. However it would be wise to play safe and keep your savings within the limits regardless.

Q3: What about a joint account?
You are both entitled, so the total would be £100,000

Q4: What about interest? Is that protected too?
Most accounts calculate interest on a daily basis even if it is only added monthly/yearly.
Instant access accounts will pay up to the date of collapse as if you had closed the account on that day. However you will not be paid any interest for the time between the collapse and receiving the compensation.
Notice accounts will be paid as if notice had been served on the day they went bust and payment will be made, including interest, at the end of the notice period.
Fixed term accounts - the procedure at Icesave (likely to be the model for future cases) is that the money can either be taken early with interest paid up to the day they went bust (7th October), or kept until the end of the term with interest paid all the way to maturity. However those who used to have the interest paid to an external account will no longer be able to do so if they decide to leave it in.
Note that the capital plus interest total is only guaranteed up to the £50,000 limit.

Q5: I heard the FSCS doesn't have a reserve fund, they just get their money when needed from other banks - but what if they can't afford to pay?
The government have made it clear they will provide the money if needed in the short term and claim it back from the banks later.

Q6: How long will it take to get the compensation?
FSCS guidelines say it should be within 6 months, whereas the EU says it should be within 3 months. But it could be more or less. Icesave has been the only recent case and most savers got their money back well within the 3 month deadline.

Q7: My savings are in an offshore account on the Isle of Man/Channel Islands. Are they covered under the UK scheme?
No. You will be covered by the local scheme, if any. The compensation for the Isle of Man is has just been raised to 100% of the first £50,000. Story here, and a thread discussing it here.
Guernsey has now also set up a scheme for the first £50,000 though note there is a cap (see link).

Q8: My savings are with a European bank (in the UK) - do I get the same protection?
You get the compensation of the home country, which may be more or less. However even if less many have joined the FSCS scheme which will "top up" any difference up to the usual £50,000 limit. Click here to find out if your particular bank has.

Q9: I have accounts with 2 banks that are part of the same group. Am I covered for £50,000 from each?
It depends whether they are registered into the scheme separately or together. Look up your banks in this table.

Q10: What is the "passport exemption"?
Some foreign banks operating in the UK have chosen to use their home country compensation scheme rather than ours. That may be more or less than the British scheme offers. Where it is less some have opted to "top up" to £50,000 under the British scheme. See Martin's article for more details.

Q11: What about ING Direct - do they have the "Passport Exemption" too?
Yes. Recently the Netherlands raised the compensation level to €100,000 (approx £77,700). They used to top this up under the UK scheme but as they now exceed it the top up is no longer relevant.

Q12: Is my business bank account covered by the FSCS?
Small companies only. To qualify score 2 out of 3 on: (1) A turnover of not more than £6.5m (2) A balance sheet total of not more than £3.26m (3) A total number of employees of not more than 50.
Partnerships - not the individual partners - could claim up to £50,000.
Sole trader could claim up to £50,000 in total, but can only claim for either personal or business accounts with each institution - they cannot claim for both.
For more info see this thread, and this one if your Ltd. Co. and personal savings are with the same bank.

Q13: Should I withdraw my money from X bank?
Only you can decide but as long as you keep your savings below the maximum compensation amounts you should be ok. If you have more you may want to spread your savings around.

Q14: I've heard this is a good time to invest in shares while the stock market is low?
With interest rates on savings now very low people are starting to looking at the stock market as an alternative, however the market is highly volatile so you while you could make big profits you are just as likely to make big losses. Don't invest money you can't afford to lose. One possible option to damp down the volatility is to drip feed money in instead of investing a lump sum. Another is to buy a well diversified fund rather than individual shares.

Q15: I have investments. Should I sell them and move to cash?
Sorry, nobody can answer that. You will have experienced recent falls but they only actually become a loss when you sell. You could stay invested and hope they go up again or sell for fear they drop further. If we knew which way the market was going to go we'd be rich.

Q16: I have investments. What if the company that is managing them goes bust?
Unwrapped investments and ISAs are covered under the Investment FSCS protection scheme which is 100% of first 30k and 90% of next 20k. However, life assurance funds and pension funds fall under the insurance protection and that is 100% of the first £2000 and 90% of the rest with no upper limit. SIPPs fall under the investment protection. However, unit linked funds are ring fenced and held under trust or similar arrangement so FSCS protection is largely irrelevant. (Nicked from this thread). Martin has a fuller explanation here.

Q17: I'm still worried. What are the very safest banks?
Note that you often miss out on the best rates if you go for the safest banks because their need for cash is less acute. Given all the compensation available personally I think this a step too far, but since the question keeps being asked here are some suggestions. Remember this is a contentious area and not everybody will agree with these choices.
Government owned ones: NS&I, Northern Rock (but accounts available to new customers are limited)
UK banks: HSBC
Also those taken over by the Spanish bank Santander (who looks very healthy) should now be secure: A&L, Abbey, B&B
Mutual building societies: Many of the smaller building societies are in very good condition. The Guardian did a recent survey. Check yours here: Introduction, those beginning A-D, E-M, N-Z



Remember so far, despite all the bad news, no saver has lost a penny.


Let me know if you think any of the answers are incorrect or there are other common questions that need adding.