Spreading your savings for safety

By Kevin Peachey
Personal finance reporter, BBC News

Different banks run different brands which is key to the scheme

Consumers have been keen for clarity on the safety of their savings during the global financial crisis.

Since queues formed outside Northern Rock branches in 2007, the rules about deposit protection have come under scrutiny.

The Financial Services Compensation Scheme (FSCS) charges a compulsory levy on the UK's financial services industry that would cover compensation for savers if a UK bank were to go bust.

Changes to the system are being considered - one consultation period ended on 6 April - and these include swifter access to compensation for savers and temporary cover for large sums.

The rules

The government says the current scheme covers 98% of accounts, and its actions so far have suggested it would also guarantee savings above this figure.

In simple terms, the system covers £50,000 of savings per person in any UK bank, building society or credit union.

But the upheaval in the banking sector has led to a number of mergers. This means that some customers with hefty savings would need to divide their money between accounts with different banks to be sure it is safe.

The key is the authorisation of an institution with the Financial Services Authority - and the brands included in each institution.

So the danger is that you could end up with two accounts with what sound like different banks but actually have the same authorisation from the FSA, which would mean you would only be covered for a total of £50,000.

The table below shows how this works.

See explanation of the table

PARENT BANK	AUTHORISED INSTITUTION	BRANDS
Source: FSA * Merger between Co-op and Britannia expected soon - no change to protection ** Unlimited protection *** Separate protection for those with money in both Derbyshire and Nationwide before merger on 1 December 2008 **** Separate protection for those with money in both Cheshire and Nationwide before merger on 15 December 2008 ***** Separate protection for those with money in both Dunfermline and Nationwide before merger on 30 March 2009
HSBC	HSBC Bank	HSBC, First Direct
	HSBC Private Bank UK Ltd	HSBC Private Bank UK Ltd
	HFC Bank	HFC Bank
	Marks & Spencer Financial Services	Marks & Spencer Financial Services
	HSBC Trust Company	HSBC Trust Company
Barclays	Barclays	Barclays Bank
	Barclays Bank Trust Company	Barclays Bank Trust Company
Royal Bank of Scotland Group	Royal Bank of Scotland	Royal Bank of Scotland, Direct Line (savings), Child & Co, Drummonds, The One Account, Lombard, Holt's
	NatWest Bank	NatWest Bank
	Coutts and Co	Coutts and Co
	Ulster Bank	Ulster Bank
	Adam & Company	Adam and Company
Lloyds Banking Group	Lloyds TSB Bank	Lloyds TSB, Cheltenham and Gloucester Savings
	Bank of Scotland (HBOS)	Halifax, Bank of Scotland, Bank of Scotland Private Banking, Birmingham Midshires, Saga, Intelligent Finance, Capital Bank, St James's Place Bank
	Scottish Widows Bank	Scottish Widows Bank
	Lloyds TSB Scotland	Lloyds TSB Scotland
	AMC Bank	AMC Bank
	Lloyds TSB Private Banking	Lloyds TSB Private Banking
Santander	Abbey	Abbey National, Bradford and Bingley, Cahoot, Asda, Abbey National Treasury Services
	Alliance & Leicester	Alliance & Leicester, Alliance & Leicester Commercial Bank, Moneyback, Honeycomb
	Cater Allen	Cater Allen
National Australia Group	Clydesdale Bank	Clydesdale Bank, Yorkshire Bank
Allied Irish Banks	AIB Group (UK)	AIB Group (UK), AIB (GB), First Trust
Co-operative Bank	Co-operative Bank	Co-operative Bank, Smile
	Unity Trust Bank	Unity Trust Bank
Britannia Building Society*	Britannia Building Society	Britannia
Standard Life Bank	Standard Life Bank	Standard Life Bank
Northern Rock**	Northern Rock	Northern Rock
Zurich Bank	Dunbar Bank	Dunbar Bank
Nationwide Building Society	Nationwide Building Society	Nationwide, Derbyshire Building Society***, Cheshire Building Society****,Dunfermline Building Society*****

If you have up to £50,000 with different authorised institutions, then all your money is safe.

For example, you have £50,000 saved with Barclays and £50,000 with HSBC Bank, all of this would be protected as the rules stipulate cover for deposits per customer and per institution.

However, if you have £50,000 in accounts with two different brands (in the same block in the final column) with the same authorised institution, then only £50,000 is covered. This is because they are authorised with the regulator under one named institution.

For example, if you have £50,000 with HSBC and £50,000 with First Direct, then only £50,000 of your savings are in the safety net. The same would be true if you have £50,000 with the Halifax and £50,000 with Birmingham Midshires.

There is an unlimited guarantee with Northern Rock as the bank has been nationalised.

Most brands under the banner of the Lloyds Banking Group have separate authorisation. However, Bradford and Bingley is now part of Abbey's authorisation - so up to £50,000 only will be covered for savers who have accounts with both Bradford and Bingley and Abbey.

Changes could be made to the scheme by the end of 2010

Co-operative Bank and Britannia Building Society are planning to merge, but authorisation will remain separate until at least September.

Savers who had funds deposited with Nationwide and Derbyshire building societies before they merged on 1 December 2008 and Nationwide and the Cheshire, before they merged on 15 December, are covered for each account. So, up to £50,000 in each would be safe. This coverage falls to a £50,000 total safety net for new customers after the mergers.

Potential changes

The compensation scheme has been tested following the collapse of high-profile banks such as Icesave.

Some key changes to the scheme are under review and, if approved, would come into effect by the end of 2010.

They include a promise to pay compensation within seven days if a bank fails. At present, payouts for savers with failed banks can take up to six weeks.

Another potential change is raising the compensation limit to £500,000 for six months. This would apply when people had to save lump sums, such as cash from selling a house, inheritance or a redundancy payment.

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