How safe are your savings in the bank?

A rescue deal for Metro Bank and other high-profile bailouts are renewing questions about the safety of savers' cash. 

The near collapse of Silicon Valley Bank UK earlier this year, MoneySavingExpert said, was a "stark reminder" that the 2008 banking crash "could happen again".

Now, Metro Bank has secured a last-minute £925 million package to "help revive its strained balance sheet", said The Telegraph, "following concerns over its finances". 

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The rescue package is likely to come as a relief to the embattled lender's 2.7 million customers, but "every sensible saver needs to make sure their money is safe", added MoneySavingExpert.

Are savings safe in UK banks?

There are "lots of scenarios" that can lead to a bank or other financial institution collapsing, said Martyn James in The Times Money Mentor, but the "main factor" is when investors and customers worry about the bank surviving. This can have a "knock-on effect" on the share price, followed by "customers rushing to transfer cash". 

During the 2007 Northern Rock crisis, recalled John Stepek on Bloomberg, the "over-extended" former building society was hit by "an actual real-life, Mary Poppins-style, queues-on-the-pedestrian-precinct, run".

Back then, a total of up to £31,700 of each customer's money was protected under the Financial Services Compensation Scheme (FSCS). But this level was subsequently more than doubled, to £85,000. 

How FSCS protection works

The FSCS was set up in 2001, under the Financial Services and Markets Act, "to cover people's savings in the event that a bank were to go bust", said MoneySavingExpert. In "simple terms", "if your bank were to fail", the statutory body aims to return any savings up to £85,000 to each customer within seven working days.  

Banks pay a levy to the Financial Conduct Authority (FCA) to help fund the FSCS, which covers all UK-regulated current accounts and savings accounts

The scheme can protect mortgages too, and investments such as a stocks and shares ISA, with coverage also up to £85,000. You may be able to claim, said Forbes Advisor, if you "lose money" because a regulated adviser "recommended a mortgage that wasn't right for you". The same goes for investments, "but only if you lose money because the investment provider has gone bust".

There are also "some circumstances" where customers could be covered for more than £85,000, said The Telegraph. Protection for "temporary high balances" includes money resulting from house sales or inheritances, and "in some cases", extends up to £1 million for six months.

How to check if your money is safe

The FSCS has a protection checker that lists which banks are covered by the scheme.

This protection is "per bank (or building society, or credit union)", said Stepek on Bloomberg, so if a saver has more than the maximum payout limit, splitting the money across multiple providers makes "sense", to ensure "all of it is covered".

 But "be aware that some banking groups have multiple brands and one banking licence", he added. So if you have more than £85,000 with two banks – such as HSBC and first direct – that are owned by the same institution with just one regulatory authorisation, you're only covered for £85,000 in total.

 Which? also pointed to this “important caveat”, and has a tool to check "who owns who in the savings market". 

You can "double your coverage" to £170,000 by having a joint account, added the consumer watchdog, as the FSCS protection is per individual. 

Nervous savers might also consider putting their money into a National Savings and Investment (NS&I) account. The bank is backed by the government and “every penny” paid in is protected by the Treasury.