How to Secure Your Savings

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.