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Are banks safe again?

Saving | Savings Accounts Helpful? 15

Asked by catjenny, submitted 09 August 2010.

Open Quote How safe is Nationwide and Santander? We have over £50,000 each in both but have another lump sum to invest in either one, two or 3 year bond - we know the FSA compensation scheme covers just £50,000 per person, per institution but didn't the last government give an assurance that no-one will lose money in a British bank and will the present government continue with this assurance?End Quote

Answered by Justin on 09 August 2010

The worst of the global banking crisis appears to be over and despite the threat of rising bad debts (especially if recession kicks back in) the likelihood of a household name bank or building society going under looks slim. But that’s not to say it couldn’t happen, so you’re right to be wary.

Both Santander and Nationwide are more focussed on retail banking (i.e. taking money from savers and lending it out at a profit to borrowers) than investment banking (the so-called ‘casino’ type of banking where traders speculate in search of profits). In theory this puts them at the safer end of the banking scale (but that’s safer...not safe!).

Within retail banking both have a reputation for being fairly prudent, so in the scheme of things I think it’s highly unlikely either will go bust.

Nevertheless, I’d refrain from holding more than the £50,000 covered by the Financial Services Compensation Scheme (FSCS) with any bank or building society (where practical) for another year or two. We’re still in challenging economic times and things could get worse again, so I don’t think it’s worth taking an unnecessary risk (even a very small one) with your savings.

There’s no explicit government guarantee beyond the £50,000 covered by the FSCS. In practice I think a developed world government would always step in to rescue a stricken retail bank (provided it could afford to) as the reputational risk of a retail bank sinking with savers’ money is too great to bear. But FSCS compensation is the only thing you can rely on.

Some good news in this respect - the amount covered by the FSCS is due to rise from £50,000 to €100,000 (about £83,000 at current exchange rates) from 31 December this year thanks to the bureaucrats in Brussels.

If you exceed FSCS compensation limits with Santander and Nationwide I wouldn’t lose too much sleep. But ideally I’d suggest spreading the money across sufficient providers to ensure you’re fully covered.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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