MSE News: FSCS - 'You won't lose a penny of protected savings'

JimmyTheWig

oldvicar wrote: »

Now I'm all in favour of a decent FSCS safety net, but something closer to the original scheme offering say 100% of the first (small) amount then 95% of remaining balances would be better. That way people are protected from losing their shirt. But they are incentivised to consider the safety of their money and save with responsible institutions, not to just to constantly 'switch and ditch' chasing the highest rate all the time regardless of who is offering it.

There are three problems with this...

1. It would provide an incentive for people to withdraw their money at the first whispers of a bank being in trouble. These withdrawals could push the bank into actual trouble which would be the incentive for many more to withdraw their money, etc. The bank then fails, even though the original whisper may have been unfounded.

2. How are we to know which banks are safe and which aren't? I would expect Martin Lewis to know more about this than I do, and I would expect I know more about this than the average punter. But even Martin generally stays clear of discussions about which banks are solvent or not. If he doesn't know, how am I or the average man-in-the-street supposed to know? Not long ago I would have said Santander would be one of the safest in the country. Now there are whispers that they might not be.

3. It discourages high interest accounts and enforces the monopolies of the big players. If a bank (especially a small bank) comes out with a high rate it might be seen as "too good to be true" and so customers may avoid it.


In theory I've no problem with someone with £85k in a failed bank losing £4k. But it's the knock-on effects of these that I have a problem with.

Pincher

It's the same old pension compensation dilemma.
They wanted all pension funds to contribute, but it's always the prudent funds that end up paying for the imprudent ones.

Political correctness has gone too far.

We need to bring back death penalties and lingering deaths for investment bankers, financial advisers etc. We need to implant tracker devices that kills on removal, so they can be tracked down even in Outer Mongolia.

hermante

Reaper wrote: »

oldvicar wrote: »

Mr Greedy saves his money in a 10 year fixed term bond paying 29% AER with a nearly insolvent bank - call it Papadopolous Bank (UK) Ltd.

Mr and Mrs Prudent, and all their little Prudents, save their money with the most solvent banks they can find, but unfortunately these pay less than 2% interest on their savings.

Do we really want to encourage the behaviour of the Mr Greedys and the banks they save with? Do we really want to risk losing all our building societies by forcing them to pay for the errors of dodgy bankers?

There is another way of looking at the same example...

Papadopolous Bank's is having a liquidity problem so offer higher interest rates to attract cash and bring their finances under control. Mr Greedy moves his money there and in doing so helps stabilise the bank.

Mr & Mrs Prudent meanwhile hear rumours of problems at the bank, withdraw all their money in a panic and give it to a different bank that doesn't need it (and hence pays poor interest rates).

Looking at it from that viewpoint Mr Greedy is helping save the bank while Mr & Mrs Prudent are doing their best to kill it.

The thing is, it is actually prudent for Mr Prudent to just put 80K in Papadopo's bank and every other bank, starting from the highest interest rates first. Mr Greedy OTOH would put all his money in the highest bank which was safe. Since the banks know this, and would rather not have each other collapse, they should be adjusting their rates appropriately.

grey_gym_sock

as JimmyTheWig said, ordinary savers can have little way of knowing which banks are safer, so i don't see that "moral hazard" is easily applied ... there is more case for moral hazard when bank have gone bust and been bailed out by the state without the top management being sacked for gross misconduct or the value of the existing shares being reduced to zero.

the problem with linking investment and retail banks is, as Reaper said, that the retail banks are lending the investment banks huge sums at very low rates of interest. if the retail banks practiced sound banking, they would regard investment banks as very high risk businesses, and would therefore (a) charge them very high rates of interest, and (b) not lend such a large amount to any one business, even if it were low risk, let alone high risk. sound banking is what matter here. if the only way to make the retail banks practice it is to separate the investment banks from them, then so be it.

i think the effect of charging investment banks appropriate interest rates for their funding is that they would find that a large part of their activities are unprofitable, so they would shrink significantly. this would tend to confirm that they have never been significant net contributors to society, when you take into account the periodic costs of bailing them out.

rs5

When you call the FSCS they will tell you that you are covered, including their website. HOWEVER! when you try and make a claim for your investment when your FCA authorised and regulated company goes into administration, get dissolved or goes into liquidation with your money, WELL that's a different matter.

It will take you 400 hours plus of emails and telephone calls to the FSCS.
You will - not sleep at night and be constantly stressed out, fall into deep depression , etc, etc...
The FSCS will take you in all the wrong directions and mislead you so that they do not have to pay you and then finally you will have to take them to court.

And then 2/3 years later when your hair has gone grey and you are struggling to keep your house and marriage you find yourself still praying that one day you may get your money back!!

IT HAPPENED TO ME!....

And can easily happen to YOU!!

Do you still want to invest??? I thought not!!

As the old saying goes "when its gone ,its gone". your money that is..

DONT!!! do it , it can ruin a very large part of your life! years that you will never! get back.

mystic_trev

rs5 wrote: »

When you call the FSCS they will tell you that you are covered, including their website. HOWEVER! when you try and make a claim for your investment when your FCA authorised and regulated company goes into administration, get dissolved or goes into liquidation with your money, WELL that's a different matter.

It will take you 400 hours plus of emails and telephone calls to the FSCS.
You will - not sleep at night and be constantly stressed out, fall into deep depression , etc, etc...
The FSCS will take you in all the wrong directions and mislead you so that they do not have to pay you and then finally you will have to take them to court.

And then 2/3 years later when your hair has gone grey and you are struggling to keep your house and marriage you find yourself still praying that one day you may get your money back!!

IT HAPPENED TO ME!....

And can easily happen to YOU!!

Do you still want to invest??? I thought not!!

As the old saying goes "when its gone ,its gone". your money that is..

DONT!!! do it , it can ruin a very large part of your life! years that you will never! get back.

You are either

A. Thick

B. Stupid

C. A Troll

.........or maybe just all three of the above. :rotfl:

PS Look under your bed, the burglars just made off with your pile of cash!

2010

I know when the Icelandic banks went bust, the government here coughed up and not all that long afterwards.

talexuser

2010 wrote: »

I know when the Icelandic banks went bust, the government here coughed up and not all that long afterwards.

Was that not because many Councils and other Public service groups had deposits with them, and it was to keep them afloat too?

Reaper

rs5 wrote: »

DONT!!! do it , it can ruin a very large part of your life! years that you will never! get back.

What exactly is your advice? As the fund covers savings accounts are you saying don't put money in the bank either?

Maybe if you tell us which company you are referring to we can comment. Otherwise your post is a bit pointless. It doesn't help anybody.

JimmyTheWig

talexuser wrote: »

Was that not because many Councils and other Public service groups had deposits with them, and it was to keep them afloat too?

As far as I can remember, it was only consumers who got their money back. Councils and the like had to cope without.