Are your savings safe? article discussion

drumbeater

RE Offsetting

From the FSCS website (http://www.fscs.org.uk/consumer/FAQs/Deposit_claims_FAQs/)

5. What happens if I owe money to a bank, building society or credit union that fails?

Amounts owed to the failed firm (for example, loans, mortgage or credit card debts) are taken into account before any compensation is paid.
If you are a borrower with the same firm this may affect the amount you can claim, as the amount of your deposits may be 'set-off' against any amounts you owe.
If a firm were to fail, FSCS would consider a depositor's overall net claim, which would include taking into account any amount owed which the firm may set off.
In the event that set off is applied, and if the borrowings exceeded the depositor's savings, there would be no overall claim against the failed firm, and the depositor would not be entitled to any compensation.
For example, if a depositor had a mortgage of £200,000 and savings of £150,000 with the same bank, set off may be applied by the Insolvency Practitioner dealing with the bank failure. As a result, the depositor may end up owing the bank £50,000, so there would be no positive balance and no claim for compensation.

So, this would suggest that all your savings would be used to pay off the mortgage and whatever remained would still be owed.

Questions:
1. The FSCS statement uses the word 'may'.. ie set off 'may' be applied, depositor 'may' end up owing... is this worrying?
2. I assume this applies to an institution, so if I have a mortgage with Halifax and savings with Bank of Scotland, these rules apply across those banks (both owned by HBOS)

LongTermLurker

drumbeater wrote: »

So, this would suggest that all your savings can be used to pay off the mortgage and whatever remained would still be owed.

Questions:
1. The FSCS statement uses the word 'may'.. ie set off 'may' be applied, depositor 'may' end up owing... is this worrying?
2. I assume this applies to an institution, so if I have a mortgage with Halifax and savings with Bank of Scotland, these rules apply across those banks (both owned by HBOS)

I read it as being that the bank can choose to set-off your savings against your debts - undoubtedly they would, but they have the choice of whether or not to do so (I've replaced your word "would" with "can" above). So in that case...

1) Not worrying, but worth considering - you should assume that savings will be set-off. Whether set off or not, you will still owe your debt. If you don't want to pay off a big chunk of your debt (as I don't) then don't have too much savings with your mortgage/debt provider. (edit - if savings are less than debts, of course you will end up owing - just because they've gone bust doesn't mean they're going to let their debtors get away - debts will be reclaimed where possible and sold on where more difficult - let the "experts" drag the money out of you, so to speak)

2) Yes, it would - actually, you may find that if you were to default on the Halifax loan, the group may take the money from your BoS savings anyway.

However, I think with the government stepping in to save 3 major banks and 2 minor building societies, even I have to agree that the need to rely on FSCS is looking unlikely.

sandspider2000

Government guarantee will rise from £35,000 to £50,000 next week, apparently...

http://www.ft.com/cms/s/0/25915358-9137-11dd-b5cd-0000779fd18c.html

dunstonh

sandspider2000 wrote: »

Government guarantee will rise from £35,000 to £50,000 next week, apparently...

http://www.ft.com/cms/s/0/25915358-9137-11dd-b5cd-0000779fd18c.html

That is the FSCS. Not a Govt guarantee.

heygringo

Okay, I've done a search like people keep telling us we should do first, but no results. So, this soon to be 50K guarantee only applies to cash. Nowhere can I find the guarantee for Stocks & Shares ISAs other than the original 100% for the first 30K & 90% for the next 20K. So can anyone elucidate on that one please?

LongTermLurker

heygringo wrote: »

Okay, I've done a search like people keep telling us we should do first, but no results. So, this soon to be 50K guarantee only applies to cash. Nowhere can I find the guarantee for Stocks & Shares ISAs other than the original 100% for the first 30K & 90% for the next 20K. So can anyone elucidate on that one please?

I suspect they aren't looking to increase other compensation limits, just cash.

Cash is everyone's "safe haven" and that's what would be the most dramatic loss, hence why they are looking to ease people's fears through higher protection.

Patr100

dunstonh wrote: »

That is the FSCS. Not a Govt guarantee.

The current BBC News site Front Page seems to think otherwise...

The Financial Services Authority increases the limit for bank deposits that are guaranteed by the government to £50,000.

benjdr

Patr100 wrote: »

The current BBC News site Front Page seems to think otherwise...

Uh uhhhhhh!
http://www.fscs.org.uk/consumer/

Oblivion

Patr100 wrote: »

The current BBC News site Front Page seems to think otherwise...

I'm afraid BBC reporting isn't what it used to be. I suppose thay can be forgiven for the mistake since there has been so much talk recently ablout government guarantees and bail-outs.

But the truth is that the FSCS is an independent body, set up under the Financial Services and Markets Act 2000 (FSMA).

I imagine the government and the Bank of England exert quite a lot of pressure on the FSA and the FSCS, but they are technically independant of the government. I wonder if this might change under the tighter regulation that is now being called for?

Dave.

dunstonh

Following on from oblivon's post here is the correct information in a bit more detail...

http://www.fscs.org.uk/consumer/key_facts/

also look at the funding link and you will see that it is financial services companies that fund it. If there is a shortfall, as there recently was the case with B&B, the Govt will loan funds to the FSCS who will in turn increase the levies to the FSA authorised companies over the coming years to repay that loan.