plonkee money an english-er's thoughts on personal finance

October 22, 2008

the impact of the credit crunch on savings accounts

Filed under: savings — Tags: , — plonkee @ 12:00 pm

Funny things have been happening lately. There hadn’t been a run on a British bank for more than 100 years. Until there was one on Northern Rock last year.

Deposits in savings accounts are insured by the Financial Services Compensation Scheme. Unlike the American equivalent (where it is seldom but occasionally accessed), this has basically never been used for a regular bank. Until Landsbanki collapsed, bringing down it’s UK subsidiary Icesave.

Now I’m not one for keeping vast sums of money in savings accounts mainly because I don’t have vast sums of money. But this turn of events has highlighted nicely that nothing is without risk. Savings accounts are safe, but they are not risk-free. Your deposit is only as safe as the institution guaranteeing it – which might be the FSCS, the bank itself, or the government.

In practice, what does this mean?

If you live in a country with a big economy, there is no need to panic. You are not better off putting your money under your mattress. You will undoubtedly be burgled if you do that.

On the other hand, now is definitely not the time to put your money in an uninsured bank. That would be very silly.

I’d suggest general sensibleness. Stay under the insured limits, spreading money around multiple institutions if necessary. If you’re really nervous, then put your money in Northern Rock, or NS&I or something as they are backed by the government guarantee in full.

Usually at times like this, someone recommends buying gold. Indeed, people have been doing just that, which means that the price of gold is particularly high at the moment. Not entirely sure myself whether that makes it a good idea.

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