Are your savings safe? article discussion

silvermum

I run a small consultancy, and bank with Abbey Business Banking. However due to the nature of invoicing/ commissioning research etc I can often have more than £100k in client income my account (before it gets paid out to suppliers etc).

Just wondered if there is any additional protection for business banking customers who may be more likely to have higher balances?

Former_MSE_Dan

Hi guys,

As Martin mentioned above, we updated the article after doing some further digging this week - thanks to mickandsus above who prompted it. The following bullet point ahas been added to the article:

Any debts with the same institution are subtracted from your savings

A piece of minutiae in the Financial Services Compensation Scheme rules dictates that if you have debts, such as a mortgage, loan or credit card with a bank that you also have savings with, any outstanding debts will be subtracted from the savings. For example if you have £20,000 in savings and a £15,000 loan, in the unlikely event that bank went bust you'll only get £5,000 compensation.

While at first glance this seems awful; in actual fact you’d be no worse off; as you would no longer owe the debt, even if it were sold on to another institution (or if your debts are bigger than your savings the amount owed would be reduced); although the flexibility of spending the savings on something else has disappeared.

The main negative is that the decision of whether to pay off your debts with savings has been taken out of your hands. While with most loans and credit cards this is a good thing (see the Should I pay off my debts? guide), if it’s mortgage debt it's not always a good idea (see Should I pay off my mortgage? guide). If this worries you, it's best to have your savings in a separate financial institution to your mortgage.

scooter100_2

what happens though if you have an offset mortgage of £50000 and a linked savings account containing £85000. would you still get £35000 compensation?

Former_MSE_Dan

Hi scooter,

Yep, thats right. They don't even need to be offset/linked; they could just be a credit card and a random savings account at the same institution.

The key is that the FSCS applies to your net savings with a bank, once any debts have been subtracted off them.

Dan

financialinterests

bristolleedsfan wrote: »

Purely for curiosity, I have compiled the following list, showing the percentage of a Building Society's mortgage assets secured by retail share balance funds. Where the percentage is low, the society relies more on non-retail funding. Many smaller societies are over 100%, therefore appear to have spare funds, though it is some of those that have been pulling their mortgage deals (Earl Shilton, Melton Mowbray, Bath etc). This is because they have had a run on lending caused by other Societies pulling Morgage/Higher LTV deals.

The bracketed figure is the society's position according to total assets.

68% West Bromwich (8)
...etc...
129% Cambridge (23)

Compiled from most up-to-date figures available at the time.

bristolleedsfan forgot to give the link to where this information was copied from, against MSE forum rules. The list was compiled by a moderator on Rpoints, http://www.rpoints.com/bb/viewtopic.php?t=1163126

rozeepozee

MSE_Dan wrote: »

Hi scooter,

Yep, thats right. They don't even need to be offset/linked; they could just be a credit card and a random savings account at the same institution.

The key is that the FSCS applies to your net savings with a bank, once any debts have been subtracted off them.

Dan

I've been fretting about this and have just opened a load of new accounts thinking my money was no longer safe at the Clydesdale and I'd have to spread it around:eek:. I've recently remortgaged with Clydesdale with a BTL offset mortgage. This is my second BTL offset: I have one for £135K with £135 in linked savings and the new one for £150K and almost £150K in another linked account/ I also have a TOISA with the Yorkshire which I notice is the same institution. Please tell me I can sleep at night again and benefit from my offsetting my mortgages and don't have to put my savings in ten different accounts!

... Though I guess this means that although I'd have no mortgage debt if this happened, I'd also not be able to access any of my savings either? So maybe I don't want all my savngs to be at risk of being wiped out and having no access to any cash and so I shouldn't keep every penny my savings in my offset accounts/linked institutions, however financially advantageous this may be???

TIA!

silvercar

I would question why you offset a BTL? If your mortgage is completely offset you are not benefitting from the mortgage interest being an allowable expense (against tax).

From what this discussion seems to say, your savings are safe, though you would have a liquidity problem. Youur answer maybe to have the 2 mortgages with different lenders - the chances of both of them going pop at the same time must be lower.

jamesd

rozeepozee, yes, you can.

It would still be prudent to keep a fair bit in a few different banks so that you'd have liquidity instead of all of your money locked up as equity during a time when getting a remortgage might be very hard or impossible

dadsarmy

financialinterests wrote: »

bristolleedsfan forgot to give the link to where this information was copied from, against MSE forum rules. The list was compiled by a moderator on Rpoints, http://www.rpoints.com/bb/viewtopic.php?t=1163126

Slightly off topic here - however maybe there should be a smite or spanking button like other Forums have. financialinterests would ceertainly have made me press a smite button against his post:p

rozeepozee

silvercar wrote: »

I would question why you offset a BTL? If your mortgage is completely offset you are not benefitting from the mortgage interest being an allowable expense (against tax).

I think that I am. In fact, that's why I offset it because I get the benefit of it being deducted from my expenses but it doesn't actually cost what is reflected on paper because of the offsetting.

That's how I thought it worked anyway and what my accountant advised.

I guess I could have an ordinary mortgage and the money in savings with a different institution but then I'd be taxed on the interest on that.