Are your savings safe? article discussion

allanvyners · 19 March 2008 at 12:54PM

Does the £35000 "ring fence" include cash ISA's
ie If you have £35000 cash in a savings a/c and Isa's with the same bank/building society are they all protected or is the £35000 the maximum cover for ALL variations.

HOLLY · 19 March 2008 at 1:21PM

I am really worried . I sold my house and placed the money in a one year bond. As this is a large amount of money i am concerned about its safety.
I realise that to remove it i would lose my interest, but on looking at the Terms and Conditions ,it states that i cannot close the account and withdraw my money. Under normal conditions there would be no need for closure, but with the Banking crisis ,its a problem.
Are they allowed to hold on to the money ,knowing that i could possibly lose everything?.............Holly

jamesd · 19 March 2008 at 1:26PM

allanvyners, yes, it includes cash ISAs. They are treated as a normal part of the per-financial institution limit and added to all of your current account and savings balances to work out how much your loss is, after reducing it by any debt you have to the bank (loans, mortgages).

It does not cover things like preference shares and bonds issued by the bank in its own name (savings bonds, properly called term deposit savings accounts are not what these are) even though those pay regular interest. You might buy those as part of a pension, stocks and shares ISA, investment bond (another type of bond that is not a savings product) or outside any tax wrapper. For example, NatWest preference shares are currently paying around 8% interest but you are exposed to a greater risk of capital value fluctuations or loss (if NatWest goes bankrupt) than in a savings account, where capital loss due to inflation is your main investment risk.

jamesd · 19 March 2008 at 1:47PM

HOLLY, yes, they are allowed to hold the money unless it has an exit clause. When you chose to take out a one year bond you freely chose to take several investment risks:

1. That the savings place would become bankrupt and you could lose all money not protected by the FSCS. This is extremely unlikely, particularly if it is a large UK bank, so I suggest that you rest easy on this score in spite of all the hype that's going on at the moment.
2. That you might lose or gain money compared to variable rate accounts, depending on how the base rate moves.
3. That you might lose capital due to inflation, depending on how high or low inflation is compared to the interest rate of the bond.
4. That you might not be able to get to the money sooner even if you needed it sooner.

Partly in exchange for you taking these investment risks, it's common for term deposit rates to be higher than no notice account rates. The bank in turn can use the longer term savings money in ways that it can't use no notice account money, so it has a chance to benefit from the extra interest it's paying (banks have to fund different terms of lending with money sourced for different terms, as part of their own liquidity protection process).

I've assumed that what you have is a term deposit savings account, which retail banks commonly call bonds. There are several other meanings of the word bond so if you can please give the web address of the product of the name of the institution and full name of the product so that if it's not a term deposit savings account the necessary different answer can be given.

Please also say when you took out the bond, since it's possible that there's a cancellation period that you could use.

Once we know where it is the chances are that others will be able to reassure you that you're not really facing a large risk.

jamesd · 19 March 2008 at 1:57PM

daz9643 wrote: »

One big potential problem is with 'one accounts'. I have a large amount of money offsetting my mortgage, if i withdraw the money and put it somewhere else it defeats the point of the product. I suppose the thing to do would be to just use the money to pay a lump sum off the mortgage but then i don't have the money handy if i need it.

That means that you have gold-plated protection. Your exposure is your net exposure. Since you have a mortage that is greater than your savings you have effectively no risk of a loss that the FSCS would protect you against.

However, you are probably currently suffering a significant loss if you will not repay your mortgage within a year or two. You have a One Account mortgage, so you're paying what's effectively a low SVR all the time. There's a list of more competitively priced current account mortgages that you might consider if the mortgage has a while to run.

You can easily get the same cash drawdown facility as the One Account offers. In addition to the current account mortgage alternatives, you could use a completely standard offset mortgage for say 20,000 more than you need and immediately deposit that extra 20,000 in the offset account. This is likely to cost substantially less than the One Account. In addition, you could deposit this extra money into savings accounts or low risk investments paying more than the mortgage interest rate and perhaps make a profit rather than no gain/loss from borrowing more money.

HOLLY · 19 March 2008 at 2:25PM

Thank you .
It is an 11 Month Fixed Rate Bond with Birmingham Midshires.
I took it out in September 2007.

alanbt · 19 March 2008 at 4:07PM

the idea that you spread more than £35000 over two or more institutions seems fine except where you are offsetting your mortgage

if the bank did collapse would the savings be used to pay off your mortgage

would you still have any protection under the financial services for any excess savings you may have over and above your mortgage?

gainergaye · 19 March 2008 at 4:26PM

We have money invested in a Bond with Norwich Union -are we protected?

daz9643 · 19 March 2008 at 4:44PM

jamesd wrote: »

That means that you have gold-plated protection. Your exposure is your net exposure. Since you have a mortage that is greater than your savings you have effectively no risk of a loss that the FSCS would protect you against.quote]

Are you 100% certain on this since i know that if a company goes bust who we buy & sell from it doesn't work that way. We are still liable to pay any outstanding amounts to them and we receive a pittance from the administrators if we're lucky for money owed to us.

Also, i just used the term 'one account' because i couldn't think of the proper term, i.e offset mortgage. I've actually offset the whole mortgage which is better than paying the mortgage off in full as i would pay an exit fee, yearly deed retention fee and i get a loyalty bonus for having both a mortgage & savings with Brittannia (£200 ish this year)

debbie42 · 19 March 2008 at 4:50PM

alanbt wrote: »

the idea that you spread more than £35000 over two or more institutions seems fine except where you are offsetting your mortgage

This has been asked a few times now on this thread. I really don't get the worries here, unless I'm being naive?

If your savings directly offset your mortgage, then you still owe the bank some cash, unless your savings are more than your mortgage. Say your mortgage was for £100K and you had £60K of savings. You are therefore paying interest on £40K, yes? In which case, you owe the bank £40K. Why the worry?

p.s. I have one of these mortgages, and the statement comes to me like an overdraft account, so it's nothing like the creditor/debtor scenario just posted of. It isn't in two separate accounts.

Are your savings safe? article discussion

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