Saver compensation limits were beefed up last year. That’s good news but bank mergers complicate matters.
There was great news recently that Virgin Money will retain a separate banking licence for Northern Rock, the ‘good’ bit of the nationalised bank it takes over in January. Savers with both Northern Rock and Virgin savings accounts will get maximum protection under the Financial Services Compensation Scheme (FSCS). Other savers are not so lucky.
The FSCS pays out a maximum £85,000 per saver per bank/building society licence holder if a provider goes bust. Should the joint Virgin Money venture go bust, savers in both bits of the business could claim two lots of £85,000 (so £170,000), double that for joint savings account holders.
FSCS payout limits were raised after the financial crisis. However the wave of bank rescues and mergers that followed has left many savers more vulnerable than they were. We don’t think that’s fair. After all, we taxpayers paid billions to rescue them. We deserve security in return.
Take Bank of Scotland plc for example. In its stable and therefore under its one licence are the brands of AA, Aviva, Bank of Scotland, BM Savings (Birmingham Midshires Building Society), Halifax, Intelligent Finance and SAGA. So if you have savings accounts with a number of these brands, compensation could be far less than you think.
Confused? We’re not surprised. If you’re worried, think about spreading your money between savings institutions on different licences. Check our handy guide to FSCS licences.
We’re not suggesting HBOS is going bust - but you never know, do you?
Savings providers could make the compensation system easier with separate licences for separate brands. That costs money, yet they should be more open about who shares a licence. Details on savings account application forms would be a good start, as would regular statement reminders where licences are shared.
In our first newsletter, out this week, we look at Northern Rock and Virgin Money savings accounts. Are their savings rates any good? Sign up for a free copy at the bottom right side of this page.