Did you know? How safe are savings?

MSE_Martin

If you have money in a savings account and it goes bust.  You are only protected for the first £35,000 (in fact you would get 100% of the first £2,000 back and 90% of the next £33,000).  

Whilst this is unlikely ever to be an issue, banks going bust ares hugely rare so  I wouldn’t worry too much, it is worth knowing that for ultimate safety– if you’ve more than this amount and can get the same rate spread over a few accounts.  This isn't a recommendation, you need to choose rate versus safety - but it is at least something you should be aware of. 

To discuss this just reply
To read the savings fountain on how to get the best rates click here

Pal

The problem is that you are not going to get the top rate at lots of different institutions, so it is costing you money when you are saving in less than optimal accounts.

Personally I think the chances of a major retail bank going under is so remote its not worth bothering about.

However I also think that anyone with more than £35k to invest is probably being a bit daft saving it in a cash savings account, unless they are planning to spend it all within the next 12 months.

johnllew

However I also think that anyone with more than £35k to invest is probably being a bit daft saving it in a cash savings account, unless they are planning to spend it all within the next 12 months.

People who invested in the stock market in 2000 would now probably wish they had been so daft.

Pal

True, but presumably they have longer time horizons than that or they wouldnt have invested in the stock market.

Given that you can get high returns on fixed rate investment bonds investing in cash for the long term doesn't make sense.

ffacoffipawb

If you have money in a savings account and it goes bust.  You are only protected for the first £35,000 (in fact you would get 100% of the first £2,000 back and 90% of the next £33,000).  

Whilst this is unlikely ever to be an issue, banks going bust ares hugely rare so  I wouldn’t worry too much, it is worth knowing that for ultimate safety– if you’ve more than this amount and can get the same rate spread over a few accounts.  This isn't a recommendation, you need to choose rate versus safety - but it is at least something you should be aware of. 

To discuss this just reply
To read the savings fountain on how to get the best rates click here

How do you define "bank" here?

Say you had £35k with Cahoot and £35k with Abbey (who own cahoot) do you get :

(a) £2k plus 90% of £33k back from Cahoot PLUS the same bqck from Abbey; or

(b) £2k plus 90% of £33k from cahoot and nothing for your Abbey account as you already had an account with Cahoot?

(Note that I am not implying Abbey is dodgy, just using it as an example. Another example could be Intelligent Finance and HalifaxBOS. Or HSBC and First Direct.)

Also:

If you invested in National Savings' new savings account, I presume that the cover is 100% with no limit as it is guaranteed by the Government?

The future's bright, the future's garlic bread.

System

I AM IN A SIMILAR POSITION WITH THE PROCEEDS OF A HOUSE SALE TO INVEST WHERE I CAN INSTANTLY GET AT IT
(ie I'm retired)
Can I open several accounts of £35k with one bank and have them all covered by the guarantee?
This is similar to the question posted by Brian Potter about the same bank owning other offshoots.
ANYONE KNOW THE ANSWER PLEASE?

Pal

No, you cannot open lots of accounts with one bank. The guarantee is "per investor" rather than "per account."

In the Cahoot/Abbey example, if Cahoot went bust Abbey would probably not. Abbey would just lose the value of the shares in Cahoot that they own. The only exception is if Abbey has some kind of financial guarantees in place in case Cahoot fails, and it cannot afford to meet those guarantees. However it would normally be able to borrow to fund them e.g. issuing more shares or selling bonds, so the chances of a Cahoot collapse resulting in a total Abbey collapse are very, very small.

If Abbey went bust but Cahoot did not, Cahoot would no doubt be sold off lock-stock to a new buyer in order to raise money for Abbey. Again, Abbey's collapse would not necessarily impact on Cahoot customers.

The chances of both going bust at the same time is very remote indeed.

I still think that it is not a problem worth worrying about, as it is likely to be so rare. You are far more likely to get run over when you leave your house. In fact, you are probably more likely to get struck by lightening.

You are almost certainly going to be better off just simply finding the highest interest rate for your cash.

If you are not going to buy another house, I think I would consider putting a year's expense money in a savings account and then investing the rest in a series of 1,2,3,4 year etc fixed interest bonds, each for the value of one year's outgoings (plus a bit). This way, in any one year I always had one investment maturing that I could then either spend or reinvest depending on my circumstances at that time.

Of course this depends on how confident you are that you can lock some of the money away for a while.

dunstonh

People who invested in the stock market in 2000 would now probably wish they had been so daft.

Depends on how long they were investing, the funds they invested in and the frequency of their investment.

Ignoring attitude to risk, for the moment, deposit accounts are just not the place for long term savings.

chickpea

I'm close to that limit with ING. I know I should do something smarter with my cash above the 35k 'safety limit', but I'm scared of taking the first step regarding investments. I think I'll dip my toes into a stocks and shares ISA next year - not without a degree of trepidation though!!

ffacoffipawb

MSE_Martin wrote:

If you have money in a savings account and it goes bust. !You are only protected for the first £35,000 (in fact you would get 100% of the first £2,000 back and 90% of the next £33,000). !

Whilst this is unlikely ever to be an issue, banks going bust ares hugely rare so !I wouldn’t worry too much, it is worth knowing that for ultimate safety– if you’ve more than this amount and can get the same rate spread over a few accounts. !This isn't a recommendation, you need to choose rate versus safety - but it is at least something you should be aware of.!

To discuss this just reply
To read the savings fountain on how to get the best rates click here

How does the like of Wayne Rooney get round this? He earns more than £35k a week. he would soon run out of banks to open accounts with, as he would need a new bank every week if he was playing safe.

National Savings presumably.

charlieboycat

Pal wrote:

In the Cahoot/Abbey example, if Cahoot went bust Abbey would probably not. Abbey would just lose the value of the shares in Cahoot that they own. The only exception is if Abbey has some kind of financial guarantees in place in case Cahoot fails, and it cannot afford to meet those guarantees. However it would normally be able to borrow to fund them e.g. issuing more shares or selling bonds, so the chances of a Cahoot collapse resulting in a total Abbey collapse are very, very small.

If Abbey went bust but Cahoot did not, Cahoot would no doubt be sold off lock-stock to a new buyer in order to raise money for Abbey. Again, Abbey's collapse would not necessarily impact on Cahoot customers.

The chances of both going bust at the same time is very remote indeed.

I'm not sure this is right. Per Cahoot's website, Cahoot is a division of Abbey PLC - not a subsidiary. A division is just part of the same legal entity - ie. Cahoot is just like any other branch of Abbey PLC (except you can't visit it). If Abbey goes belly up then it doesn't matter which branch your account is with (physical or internet) - its all one legal entity (ie. the PLC) and it's the legal entity that's bust.