The deal was initiated by the board of the Barnsley BS to protect itself from the possible loss of up to £10million deposited with Icelandic banks. This merger with the larger Yorkshire BS is expected to be completed by the end of the year. There will be no windfall for Barnsley savers.

The Yorkshire is the third-largest building society in the UK with 136 branches and 1.9 million members. The Barnsley has only 8 branches and 60,000 members.

In September, the UK’s biggest building society, the Nationwide, staged a rescue takeover of two small societies, the Derbyshire and the Cheshire.

The Barnsley is the latest casualty of the troubled Icelandic banking system, which has seen hundreds of thousands of UK savers losing access, at least for the time being, to their accounts with the Icesave internet bank and other Icelandic financial institutions.

According to a recent survey by the Royal Institution of Chartered Surveyors (Rics), the decline in the property market is becoming even more serious. In September, estate agents sold less than one property per week on average.

The number of properties sold in the UK was the lowest since the Rics survey began in 1978. The figure is a staggering 52% lower than in September of last year.

Mortgage providers such as the Nationwide and the Halifax have reported that house prices have fallen by 12% in the last year.

Interest rates have been cut by 0.5%. Six central banks, including the Bank of England, have made the move in an effort to steady the tottering global economy.

The Bank of England’s action drops the base interest rate from 5% to 4.5%. The European Central Bank cut its rate from 4.25% to 3.75%, and the central banks of Canada, Sweden and Switzerland all took similar action. The US Federal Reserve has trimmed rates from 2% to 1.5%. China also cut its rate, but only by 0.27%.

This unprecedented coordinated global action comes amid tumbling world stock markets. European financial markets reacted favourably to the news, pulling back some of the losses.

In another major development, the UK government unveiled a package of measures aimed at rescuing the banking system. The total cost could add up to a whopping £500 billion.

Banking shares have plunged after news that major UK banks had met with Chancellor Alistair Darling to discuss Government fundraising.

Royal Bank of Scotland (RBS) shares dropped 17%, HBOS tumbled 14%, Lloyds TSB fell 11% and Barclays were down 5%. Barclays has strongly denied that it has requested financial help from the Government. RBS and Lloyds TSB have both declined to comment.

Treasury rescue plan

The Treasury is understood to be putting together a plan that would involve the Government providing extra cash to the banks in exchange for stakes in them.

Lending problems

Also depressing shares in RBS, which owns NatWest bank, has been the recent news that the ratings agency S&P has downgraded it. This effectively means that S&P think it is a less safe institution to lend money to. This will only make things worse for RBS. It is the difficulty banks are having in borrowing money from each other that is at the root of the credit crunch.

As banks find it increasingly difficult to borrow from each other, they have been forced to borrow from the Government instead, to the sum of £200 billion over the past year.

Global banking gloom

Things are getting tougher for foreign banks also. The Government of Iceland has had to take control of the country’s second biggest bank Landsbanki. Landsbanki owns the internet bank Icesave, which is now preventing customers from withdrawing money.

If Landsbanki were to fail, savers would be refunded their first £16,000 from the Icelandic Government and then up to £34,000 from the UK Financial Services Compensation Scheme. But claims from the UK would all be handled by the UK authorities.

The redemption penalty clause is often hidden away in the small print of the mortgage deal. Pay off your mortgage early, and it may come back to haunt you.

The consumer lobby claims that redemption penalties are nothing more than shackles on property-buyers freedom to get the best mortgage value. But the financial thinking behind imposing them is clear cut: the twin pressures of competition and borrower demand have forced lenders to offer products at interest rates which bring in low revenues per loan. In order to make a realistic profit, they need borrowers to remain with them for as long as possible. The function of the early repayment penalty is therefore to persuade the borrower to stay put, or face a substantial charge for changing lender.

Why not scrap redemption penalties?

To abolish these penalties altogether, would narrow a borrower’s choice, with less lenders willing to offer low interest rate loans.

Over-hanging penalty clause

Some redemption penalty clauses persist even when the interest on the loan has reverted from the discounted rate to the standard variable rate. This is known as an “over-hanging penalty clause”. Due to growing pressure from consumers, the number of mortgage products offered with an ‘over-hanging’ penalty clause appear to be declining.

Always read the small print!

The continuing turmoil in the banking sector and concerns about the stability of banks such as Halifax Bank of Scotland and Bradford & Bingley, have led to increased worries about the security of savings deposits.

So where can savers put their hard-earned cash with the full confidence that it will be protected?

The risks to savings deposits

So far no saver in the UK has lost money as a result of the credit crunch, but understandably many are becoming increasingly nervous.

For ordinary mainstream savers, there is in reality little reason to be concerned. The average savings account in the UK holds around £9,000. These accounts are fully protected under the Financial Services Compensation Scheme (FSCS). The FSCS guarantees that if a bank or other financial institution collapses, £50,000 per saver held with any one savings provider is guaranteed (this has recently been increased from £35,000). If a joint savings account is involved, it is protected up to £100,000.

With about 40% of single accounts exceeding £50,000, however, savings can still be at risk. The key here is to distribute money between different providers. It is critical to check, however, that the savings accounts belong to independent providers. Some banks, for example, offer savings accounts under different brand names, but share the same registration with the Financial Services Authority. This means that savers could find themselves in the unfortunate position where they are covered for only one of multiple accounts, if the provider goes bust.

Which are the best savings accounts?

With savings rates at their highest level for years, it is possible to have multiple savings accounts without sacrificing returns. Individual savings accounts (Isas) should be the first choice for savings, as they are tax-free investments. Up to £3,600 can be deposited into a cash Isa every tax year.

If savings do not need to be accessed at short notice, fixed rate bonds are worth considering as they offer the highest rates of interest.

If access to savings is required then internet savings accounts are a popular type of savings account as they allow money to be moved in and out at any time. Many of these accounts are paying gross interest at well in excess of 6.0%.

What if you want all your savings in one place?

While it is possible to protect large savings deposits by spreading money between different providers, there are two which offer unlimited guaranteed protection. Northern Rock and National Savings & Investments (NS&I) are both Government-backed giving savers total protection. However, with the exception of NS&I’s index-linked savings certificates, the rates available from either institution are not the best, so this protection does come at a cost.

The Financial Services Authority (FSA) has raised the compensation limit for savings from £35,000 to £50,000 pounds per customer claim. This comes after signs of savers withdrawing cash to put into “safer” havens. This sum could be further increased as the British Government battles to restore confidence in the banking sector.

Britain’s move fell well short of Ireland’s no limits guarantee for all savers. There are now worries of significant cash outflows from British to Irish banks, due to savers worries about the security of their deposits. Nerves are still unsettled after the rescue of Northern Rock and Bradford & Bingley and the takeover of HBOS.

The FSA indicated that the raised compensation ceiling would take effect from October 7, and that savers with joint accounts would be eligible to claim up to £100,000 should their bank collapse.

With around 40% of UK savings accounts exceeding £50,000, a further increase in the compensation cap will be needed to sufficiently bolster saver confidence. The FSA stated that it will consult on further reforms, including considering whether the compensation limit should be increased above £50,000.

Global shares have risen overall due to increasing optimism that a revised version of the $700bn US banking rescue plan will be approved by US lawmakers.

With the US Senate set to vote on the amended plan, hopes are growing that sufficient changes have been made to get the bill through.

The UK’s FTSE 100 share index was up 0.9% at 4,950 in morning trading. UK stock prices were boosted by news that the Bank of England is to inject a further £17bn into the money markets.

Mortgage lending crashed in August, with advances falling to just 5% of the previous month’s total. Net lending in the month amounted to only £143 million, the lowest figure ever recorded by the Bank of England’s statistics series which began in 1993. July’s sum was close to £3 billion.

The slide was almost certainly caused by the combination of falling house prices and the credit crunch. Speculation over the Government’s recent stamp duty announcement is also believed to have caused house buyers to delay borrowing during August.

Total mortgage advances totaled £19.19 billion during August, the lowest figure for 6 years. But it was net lending, which strips out repayments and borrowers remortgaging elsewhere, that took a hammering.

The situation looks set to worsen, with the number of mortgages approved for house purchase declining to a new record low of 32,000 during the month.

Mortgage lender Bradford & Bingley (B& B) has been nationalised in the latest setback for the British banking sector.

The Treasury has added B&B’s £41 billion loan book to the public balance sheet and guaranteed around £9 billion in other commitments. The move comes after Northern Rock’s nationalisation in February, which added £87 billion to the national debt.

B&B has 3,000 staff and 197 branches. Its branches and its savings business have been sold for £612 million to Spanish bank Santander. B&B has 2.7 million savings customers and £20 billion in deposits. Santander owns Abbey and recently agreed to buy Alliance & Leicester, so the deal will boost its position in the UK with 1,286 branches and a 10% share of the retail savings market.

The deal comes only 2 weeks after a £12.2 billion rescue of Halifax Bank of Scotland by Lloyds TSB was announced.

The Financial Services Authority (FSA) decided that B&B was not strong enough to continue as a deposit-taking bank due to a loss of confidence in the firm.