Thursday, 23 May 2013

How safe is your cash with a bank?

 Having money in your bank is safe?   Well maybe not!
Since Carr vs Carr in 1811, when you deposit your money with a bank they create a debtor account and you become an unsecured creditor of the bank.
However, UK financial institutions with a banking licence are covered by the Financial Services Compensation Scheme (FSCS), which is designed to protect your deposit if the bank were to become insolvent.
The limit is £85,000 per person. So for a joint account cover of £170,000 is available.
If you have more than these amounts in a bank or building society account do make sure you spread it around amongst other banking licence institutions to protect yourself.
However, one thing to be aware of is that this limit is per banking institution - not per individual bank, so Lloyds and Cheltenham and Gloucester come under the same licence.
As an example, recently the Co-op bank has been in the news since Moody’s downgraded it’s credit rating to “junk bond” status.
Within the same banking institution as the Co-op bank is Britannia Building Society. Therefore, if you held an account in your own name only with both institutions with £50,000 in each of them you would in fact not be properly covered if the bank were to fail.
In total your deposits amount to £100,000 but since both institutions are under the same banking licence, in a worst case scenario only £85,000 of this amount would be covered.
So make sure that you spread your money around banks with separate licences.
I spoke to a prospective client who had €300,000 in one bank in Portugal.
He thought he was cautious and wanted to leave that money in a deposit account rather than putting it into investments. I advised to him was to move it asap and spread it around at least 4 separate banking institutions – This risk is lower even if he is getting a lower interest rate than with his current bank.
The aim must be to preserve capital even if you lose a small amount on the interest rate.
If you have any queries on where your money is currently held and you are concerned about what to do, please do call me on 01483 453755.

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