Can banks take your savings now?

As Cypriot savers see their savings used to bail out banks, we look at how safe your money is in a British bank.

You know those savings you have in the bank. You always assumed they were yours, didn't you? Nobody could touch them without your permission. No matter how much or how little you had, your savings were sacrosanct.

They thought that in Cyprus as well, but they were wrong. Their savings turned out to be at the mercy of politicians, who saw them as a reservoir of cash to be drained at will.

Could it happen to your savings?


Russian roulette

In a bid to bail out their banking system, the Cypriot government proposed scooping up to 10% out of every single bank account to pay for the €10 billion bailout. Imagine that happening to your savings...

The original proposal was shot down out of pity for the little savers, but the savings grab is still going ahead, now targeted at wealthier savers.

Under eurozone rules, the first €100,000 of savings, roughly £85,000, is protected from a banking collapse. Savers in Cypriot banks with more than that will lose up to 40% of their money.

Many of them will be gold-encrusted Russian oligarchs who have used Cyprus as their money-laundering base in the EU, so it's hard to feel too much sympathy for them.

But others will be ordinary people who spent a lifetime squirreling money away for their retirement, and naively thought that money belonged to them. This includes an estimated 60,000 British expats.


What's yours is theirs

Savers were assured that Cyprus was a special case, until leading Dutch finance minister Jeroen Dijsselbloem suggested this cash grab could form a "model" for future eurozone bailouts.

His words sent a chill down the spine of savers in troubled eurozone countries such as Greece, Italy, Portugal, Spain and even France. Banking stocks in these countries plunged.

Thankfully, the UK isn't in the eurozone. Mr Dijsselbloem can't help himself to your money, can he?


[Related link: Use your tax-free ISA allowance or lose it – compare ISAs now]


Closed for business

If you're a UK expat with a bank account in Spain, Italy, Portugal, Greece or France, your money isn't as safe as you thought, even if you hold less than €100,000.

Any funds above that level are absolutely in the firing line come the next eurozone bailout (you're not telling me this is the last one).

You would be crazy to take a chance with that money. Because, when crisis strikes, the authorities can close banks faster than you can fight your way to the ATM. That's what happened in Cyprus. Every bank has now been shut for 11 days to stop a run on the currency.

Even when the banks do reopen, there will be limits on cash withdrawals and controls on taking capital out of the country. Whose money is it anyway?

If that money is there to fund, say, the running costs of a second home in Spain, try to keep the bare working minimum overseas.


Sound as a pound

What about UK deposits? Sterling may be one of the world's weakest major currencies right now, but thankfully, we don't share it with anybody, including the Germans.

In the UK, we have our own deposit protection scheme, the Financial Services Compensation Scheme. This guarantees the first £85,000 of your money (£170,000 for couples), should your bank, building society or credit union collapse.

Anybody who remembers desperate savers lining up outside the branches of bankrupt Northern Rock in September 2007 won't want to have a penny above that threshold.

Savers with larger sums must reduce their risk by spreading it between different banks. But watch out, that £85,000 limit only applies per banking licence.

Some institutions share a single licence, because they are owned by the same parent company. For example, The AA, Birmingham Midshires, Halifax and Saga all come under the Bank of Scotland licence. If you had, say, £50,000 with the AA and £50,000 with Halifax, you would only get £85,000 of protection.


[Related link: You could earn more interest on your money by lending to businesses – compare peer-to-peer savings now]



Double Dutch

Few UK savers will now be willing to park their savings with foreign-owned banks trading in the UK without FSCS protection. Happily, this practice is now dying out.

Some 50,000 UK savers had accounts with the Bank of Cyprus, but they have enjoyed FSCS protection since last year (as do UK savers with Spanish-owned Santander and Indian-owned ICICI Bank UK). The estimated 13,000 who have savings with Laiki Bank UK aren't covered, although the bank has assured them their money is safe. If you trust banker assurances, that is.

Anglo-Irish Bank isn't covered by the FSCS, but that is closed to new business anyway. Its savers are protected by the stricken Irish government, and should shift their money back to Blighty if they can.

That only leaves Triodos Bank, the Dutch-owned sustainable bank, that comes under the Dutch deposit protection scheme. The Netherlands still has a AAA credit rating, so it should be safer than most. But these days, who knows?

Savers shouldn't really have to make judgements on whether governments are solvent.


'Great' Britain

If you have money in an offshore savings account, you will rely on the local deposit protection scheme, even if the bank is the subsidiary of a major UK name.

So if you have money with Nationwide International, based on the Isle of Man, your money is in the hands of the Isle of Man depositors' protection scheme. This protects 100% of the first £30,000 savings and 90% of the next £20,000. Maximum compensation is £48,000, no matter how much you have saved.

Some British depositors in Icelandic bank Kaupthing, Singer & Friedlander (Isle of Man) lost a lifetime of savings in the 2008 financial crisis. Their stories are heartbreaking.

The banks really can swallow your money. So spread it around, never exceed deposit compensation limits, and wherever possible, make sure it is covered by the FSCS. Sometimes British really is best.

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