Finance: Expert discusses impact of inflation on a savings account
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Currently in the UK, savings in a bank are protected by upwards of £85,000. Savers need to be aware that this also includes when putting savings into two sister banks, such as HSBC and First Direct, which are different banks from the same group.
Another example of sister banks would be Halifax and Bank of Scotland, which exist under the Lloyds Banking Group.
The main body which protects the public from scams is the Financial Services Compensation Scheme (FSCS).
It was set up to cover peoples’ savings if a bank were to go bust and protects 100 percent of the first £85,000 someone has saved within one financial institution.
Furthermore, the FSCS recovered £20billion from the 2008 bank failures and repaid all £20.5billion borrowed from the Treasury that year.
In the dire situation if a bank were to fail, the FSCS would work towards returning any savings up to this amount returned back to the account holder within seven working days.
However, on top of savers needing to be aware of the loophole regarding financial institutions, some banks offering savings accounts in the UK are not regulated by an authority in the country, so therefore would not be protected.
This includes many EU-owned banks which opt for a “passport” scheme when operating in the UK, as well as savings held in an offshore account.
Savings warning: Is your money protected? (Image: GETTY)
Protection by the FSCS only applies to banks and financial institutions regulated by the Financial Conduct Authority (FCA).
However, there are a number of ways people can secure the majority of their savings, without being penalised by the limits placed by financial institutions.
Spread savings across multiple accounts
While the idea of putting all one’s savings into one account may seem sensible due to the immediate accessibility of the majority of finances, this is not the case.
Splitting savings across multiple accounts has many benefits to those looking to save money.
If savings are less than £85,000, there will be no major issues regarding protection.
If one’s savings are over £85,000, it is crucial to spread money across at least two financial institutions in order to save.
If the finances consistently wildly exceed the £85,000 limit, it may be a person chooses to split savings across several accounts with different financial institutions in an effort to mitigate some potential risk.
Place money in NS&I
Any savings placed into a National Savings and Investments (NS&I) is fully supported by the UK Government.
Outside of the country being placed into a permanent recession, this means any money in a NS&I is 100 percent protected.
Savings warning: Protection by the FSCS only applies to financial institutions regulated by the FCA (Image: GETTY)
Savers can place up to £50,000 in Premium Bonds, or get another savings account or cash ISA with the Government-backed bank if they are looking to save money safely.
Ahead of his second year as FSCS Chair in May, Marshall Bailey outlined the issues affecting savers and bodies going into 2021 and beyond.
Mr Bailey said: “The role played by our regulators in this country is not an easy one.
“They are tasked with defending an enormous perimeter, and are constantly being tested by new technologies, and sophisticated bad actors.
“Their challenges have been laid bare in recent times, yet they have responded admirably, with fresh energy.
“Our work on preventing bad actors from re-emerging, sharing our data, and our submissions to their requests for support, have all had a constructive impact.
“We will continue to do all we can to support them.”
He added: “We must not let the global pandemic distract us from the epidemic that was already well underway in the UK financial market before COVID-19 arrived – one of rising claims and compensation costs.
“Financial products and services have grown ever more complex, fuelled by the opportunities brought through digitisation.”